Emerging Markets: What Has Changed – Friday, Sept.7

(from my colleague Dr. Win Thin)

Philippine central bank signaled another big hike.

Poland central bank appears to be moving its forward guidance out further.

Russia officials are sending confusing signals regarding monetary policy.

Russia officials stand ready to support the ruble debt market if new US sanctions negatively impact it.

South Africa’s African National Congress pledged to undertake land reform responsibly.

Moody’s cut its 2018 growth forecast for South Africa to 0.7-1.0% from 1.5% previously.

Central Bank of Turkey signaled it will hike rates at the September 13 meeting.

Argentina announced a new export tax to help narrow the budget deficit.

Brazil presidential candidate Jair Bolsonaro was seriously wounded at a campaign stop.

In the EM equity space, as measured by MSCI, Brazil (+1.4%), Turkey (+0.6%), and Hungary (-0.3%) have outperformed this week, while Colombia (-4.3%), China (-4.3%), and Hong Kong (-3.9%) have underperformed. To put this in better context, MSCI EM fell -3.2% this week while MSCI DM fell -1.6%.

In the EM local currency bond space, Turkey (10-year yield -201 bp), Argentina (-68 bp), and Korea (-5 bp) have outperformed this week, while the Philippines (10-year yield +30 bp), Indonesia (+26 bp), and Chile (+20 bp) have underperformed. To put this in better context, the 10-year UST yield rose 8 bp to 2.94%.

In the EM FX space, TRY (+2.2% vs. USD), ILS (+0.5% vs. USD), and HUF (+0.5% vs. EUR) have outperformed this week, while RUB (-3.1% vs. USD), ZAR (-2.9% vs. USD), and INR (-1.0% vs. USD) have underperformed.To put this in better context, MSCI EM FX fell -0.6% this week.

Philippine central bank signaled another big hike. Governor Nestor Espenilla said that “The Bangko Sentral ng Pilipinas will “take strong immediate action.”The comment comes after higher than expected inflation of 6.4% y/y in August. Last time the bank promised strong action, it delivered a 50 bp hike last month. Next policy meeting is September 27, but Espenilla added that a policy meeting outside of the scheduled six-week cycle is an option. If so, it would be the first intra-meeting move since the BSP adopted inflation targeting in 2002.