The Brazilian GDP proxy fell 0.5% m/m in September

DATA REVIEW

• China’s trade balance rose to USD32bn in October on the back of accelerating exports. While exports to more traditional markets, such as the euro area and Japan, were lacklustre, growth to ASEAN countries surged. Meanwhile, although Chinese financial data disappointed, monetary policy is still accommodative. New lending dropped to 505.2bn, from 623.2bn but importantly the share of longer term loans rose suggesting lending is becoming increasingly focused towards investment projects which bodes well for Q4 GDP growth although the chance of bank reserve rate cut is diminishing.

• The end of China’s 18th Party Congress resulted in the announcement of Xi Jinping as the new Secretary General and upcoming President, and Li Keqiang appointed as premier, effective March 2013. The Standing Committee of Politburo was also reduced from nine members to seven. In all, the new leadership is likely to be pro-business and pro-stability, with a focus on reforms to achieve their targeted doubling of 2010 real GDP by 2020.

• Indian wholesale price inflation surprised on the downside in October at 7.45% y/y, from 7.8% in September. However, this may not be enough to drive an interest rate cut in the near term, particularly as WPI is prone to significant upward revision. That said, industrial production was notably weak (contacting -0.4% y/y in September), which will put pressure on the central bank to ease policy at the upcoming mid-December meeting. For now we maintain our view of an interest rate cut in Q1 2012 although November’s inflation and Q3 GDP will be watched closely.

• The Brazilian GDP proxy fell 0.5% m/m in September as expected, reflecting a sharp slowdown in auto production. Nonetheless, following the strong performance in July and August Q3 GDP is still on track to increase 1.2% q/q from 0.4% in Q2. Moreover, preliminary industrial production data point to a rebound in activity in October.

THE WEEK AHEAD

• Turkey’s central bank Governor Basci has communicated that the CBT would consider reducing interest rates if the TRY continues to appreciate. The TRY was boosted by a pick up in portfolio inflows in the led up to the upgrade to investment grade by Fitch. This has raised concerns about ‘excess’ exchange rate appreciation. Basci hinted that excess appreciation would be if the monthly Real Effective Exchange Rate (REER) Index was to approach the 130 level. It stood at 117.4 in October, but we suspect it will be higher in November. The main take away from this is the CBT seems certain to lower its policy rates further. We expect the ceiling of the interest rate corridor to be reduced by 50bp to 9.0%, while the floor is forecast to remain unchanged at 5.75%. We acknowledge that there is a chance that the CBT may move to lower the benchmark at Tuesday’s meeting but we suspect that they will keep this in their back pocket for the time being.

• We look for the South African central bank (SARB) to leave its benchmark interest rate unchanged at 5% on Thursday, despite sharp falls in mining and manufacturing activity. Supply disruptions are likely to continue to impact upon mining and manufacturing output and lead to volatile GDP growth, but an interest rate cut will not solve these problems. Moreover, while household spending has moderated it is remains firm. We also note that food price pressures are starting to creep in which could see a modest upgrade to the SARB’s inflation forecast. We forecast unchanged consumer price inflation in October at 5.5% y/y. Recent wage deals and a 7% depreciation in the ZAR since late September could see inflation move back above the 3% to 6% target range in the coming quarters.

• Russian GDP growth slowed to 2.9% y/y in Q3, from 4% in Q2. Monthly indicators suggest that agriculture and construction were major drags on growth. While households are forecast to have been a key driver of Q3 GDP growth, the recent surge in consumer price inflation has eroded households’ purchasing power and we expect retail sales growth eased to 3.9% y/y in October, from 4.3% in September. Meanwhile, weak business confidence is forecast to have weighed on investment, with growth forecast to remain in contractionary territory for the second consecutive month in October. On balance, with little relief from external demand we look for GDP growth to slow further in Q4.

• The HSBC Chinese ‘flash’ PMI index will give the first steer on whether the recent pick up in activity has continued in November. A solid increase in new orders is expected to drive the output component of the survey and overall PMI. We expect the index to rise to 50.3, from 49.5 in October – the first time it has been above 50 since late last year.