EM macro and strategy focus - Deutsche Bank

"We foresee RBI on hold while EM Asia CPI inflation heads higher. We also foresee NBP on hold, Russia inflation falling while Turkey inflation edges up in September," notes Deutsche Bank Markets Research team in their latest "EM Macro and Strategy Focus" report.

Key quotes:

"In Colombia, we expect statistical base effects and food prices to drive consumer prices above BanRep’s target band in September, but this should not materially impact inflation expectations or monetary policy. Inflation indicators in Brazil will likely remain subdued, reinforcing the case for lower interest rates."

"Strategy Focus: The recent correction has brought asset prices more in line with fundamentals, but there is still little premium for possible overshooting in USD and UST. Credit and higher real rates remain the more defensive positions. FX has adjusted to higher DXY but it is exposed to overshooting."

"FX: EM currencies remain largely a by-product of broad USD moves (with explanatory power 2-3 times higher than that of US yields). We are encouraged by the fact that the EM FX has held up against the EUR during the sell-off and that it has already (mildly) overshot the DXY move. Still, with uncertainty at the Fed and fiscal policies skewed to stronger USD and yields, we see limited room for retracement. We continue to favor currencies with favorable CA / BoP profiles such as the RUB and BRL (vs. CLP for a more defensive position) and see ZAR as the macro risk proxy-hedge of choice. We would favor retracement trades in MXN, TRY, and INR but only when we have more clarity on US policies and see more durable USD stability."