Key events in EMEA and Latam next week

The next MPC meeting should be relatively calm. We do not expect new information regarding either monetary policy or macro-prudential tools related to the potential conversion of Swiss franc mortgages.

The CPI index is likely to decelerate slightly to 2.8% year-on-year. A lower contribution should come from fuel prices, while changes in other components should be marginal.

Wage growth will accelerate on the back of the July pay-raise for health-care workers in the public sector. It has already supported consumption throughout the summer months and we see this trend having continued in August, thus growth in retail sales turnover might accelerate further. Our call is supported by the elevated consumer confidence indicator, which peaked at a 12-month high level in August. However, next week will bring some bad news too as we see the manufacturing PMI dropping to a level not seen since mid-2016, in line with the bad readings across Europe.

September industrial confidence stagnated for the fourth month in a row at its lowest level in the last six years, while August PMI surprisingly improved to 45 points. Still, given the slump in Manufacturing German PMI in September, Czech PMI is likely to deteriorate again next week close to 43 points.

Russia is likely to see a further deceleration in CPI from 4.3% YoY in August to 4.0-4.1% YoY in September, which some might see as a challenge to the Bank of Russia’s year-end target range of 3.8-4.2%. We do not see the slowdown in inflation as an argument for an immediate cut in the key rate, which is currently at 7.0%, as 1) the weekly CPI dynamic suggests that the deflationary pressure from the fruit and vegetable segment is coming to an end; 2) the expected acceleration in the budget spending and persisting uncertainties related to gasoline prices prevent us from improving the mid-term CPI outlook; and 3) Bank of Russia’s cautious approach to the key rate lie beyond the near-term CPI trend considerations. Depending on the global risk picture, we do not exclude a cautious 25 basis point cut to follow at the December 2019 core meeting.

We expect the continuation of the downtrend in inflation on the back of easing in cost-push factors, TRY stabilization and weak demand, while the drop to be more pronounced in September with a large supportive base effect. This should pull the annual figure down to the single-digit level at 9.8% (1.5% month-on-month).