Key events in EMEA and Latam next week

Russia is likely to report a $12 billion current account surplus for 3Q19, which was fully sterilized by FX purchases mandated by the budget rule. In 4Q19, the current account is set to expand to $25-30 billion on seasonality, meaning that only 40-50% of it will be offset by FX interventions. This, however, doesn’t mean that the rouble is out of the woods as a number of risks remain, including a deterioration of non-fuel exports, persistent private capital outflows and a weakening of portfolio inflows into the local public debt market (OFZ). Next week’s balance of payments release should be watched for signs of any of the above.

The most important data release is clearly the September inflation reading. We see the headline indicator dropping below 3% for the first time since January 2019. The main driver behind this is the base effect in fuel and food prices, so it won’t help to drag down the core reading. Core inflation might move up to 3.9% year-on-year, as the weaker forint and higher prices in services kick in. When it comes to industry, we see significant uncertainty in the August reading, but high volatility is expected to remain. We base our pessimistic call on the downward trend in the Purchasing Managers Indices and the usual summer shutdowns.

While the July figures were supported by two more working days, August real data will suffer from one less working day in year-on-year terms. As such, we should see much weaker prints compared to the previous month. Industrial production will experience a year-on-year fall, not only due to the calendar bias but also a 10% YoY fall in car production, which followed a more than 20% YoY increase in July. September CPI will remain close to the 3% tolerance band, but as package-holiday prices usually fall after the summer-months season, we expect some deceleration in YoY headline CPI, which is also due to a minor drop in food and fuel prices. Conversely, a public transport discount introduced in September 2018 will fall out of the YoY comparison.

We expect September inflation to inch 0.2 percentage points higher compared to the previous month. This will translate into a 3.6% annual figure versus 3.90% in the previous month, with food and non-food items accelerating MoM. More importantly, core inflation is likely to remain just below the 3.50% central bank upper target.