Emeriging Markets: Week Ahead Preview

(from my colleagues, Dr. Win Thin and Ilan Solot)

Despite the growing tensions in Thailand and the risk of military involvement, equity indices stared off the week higher and THB stable. There is some optimism that a possible delay to the February 2 vote could open up space for some sort of compromise. This will be the key factor to watch this week. But with major roads in Bangkok being blocked and protests gaining momentum again, we are less sanguine that there will be an easy solution to struggle, regardless of the timing of the elections. 

China data deluge will continue this week. December money and credit growth should be reported, with consensus seeing a slight slowdown in December. IP, retail sales, and Q4 GDP are due out the week after, on January 20. USD/CNY is likely to trade sideways to firmer in the coming weeks. The pair is making new lows for this move, but soft data so far for December should prevent excessive gains for the yuan going forward. 

Turkey reports November current account data on Tuesday, expected at -$4.25 bln vs. -$2.9 bln in October. If so, the current account would possibly be showing early signs of stabilizing, as the 12-month total would be virtually unchanged at around -$60.9 bln. Still, it is only one month’s data and further confirmation is needed. On a weekly TRY chart, there is an upward channel dating back to 2009. The top of that channel comes in now near 2.27, but clearly there is risk of even great losses than that. Short-term, resistance seen near 2.20 and support seen near 2.15. 

Mexico reports December ANTAD retail sales Tuesday, expected at 1.0% y/y vs. 3.4% in November. December headline CPI came in at 3.97% vs. expected 3.92% and 3.62% in November. Modest acceleration in inflation should justify the central bank’s decision to keep rates steady at 3.5% since the last 25 bp cut in October. However, real sector data remain weak for the most part, with November IP reported at -1.4% y/y. We can't rule out another cut in 2014 if recovery doesn't materialize as the bank expects. We are right at the top of the 2-4% inflation target range, but we note that above-target inflation didn't stop the bank from cutting rates in March 2013. For USD/MXN, daily trendline support dating back to the July low seen near 12.90 while resistance seen near 13.20.

Hungary reports December CPI Wednesday, expected at 0.4% y/y vs. 0.9% in November. Central bank minutes last week suggest rate cuts to continue this year, but at a slower pace. Two voted for a 10 bp cut at the December 17 meeting, while the majority voted for 20 bp. But those voting for 20 bp agreed that it may need to slow the pace. Next meeting is January 21, and consensus is for a 10 bp cut to 2.90%. Earlier Wednesday, IP and retail sales came in fairly firm, but CPI inflation is expected to ease to 0.4% y/y from 0.9% in November when it is reported January 15. Central bank is doing a bit of balancing act but we think easing continues over the next few months. For EUR/HUF, support seen near 298 and then 296 while resistance seen near 300 and then 304.

South Africa reports November retail sales Wednesday, expected at 1.0% y/y vs. 1.3% in October. November manufacturing rose the consensus at 0.3% y/y vs. a revised 1.7% (was 1.5%) in October. The economy is soft across the board, and with inflation starting to ease (for now, at least), we think the markets are wrong to be positioned for SARB rate hikes this year. At the very least, steady rates will be seen but we think the risks are tilted towards easing, not tightening. Money and credit growth continued to slow in November to cycle lows, pointing to slower activity ahead. For USD/ZAR, support seen near 10.50, while resistance seen near 10.80 and then 11.00.

Poland reports December CPI Wednesday, expected at 0.7% y/y vs. 0.6% in November. Core CPI will be reported on Thursday and is expected to remain steady at 1.1% y/y. Poland left rates steady last week at 2.5%, as expected. It kept guidance for steady rates to mid-year, and noted high unemployment will curb wage and price pressures. We think risks are tilted to rates staying steady later than mid-year, not before. The real sector is improving, albeit modestly, and see little need for imminent tightening. For EUR/PLN, support seen near 4.15 and then 4.13 while resistance seen near 4.20.

Brazil central bank ends its policy meeting Wednesday and is expected to hike rates 25 bp to 10.25%. However, a fair amount are looking for a 50 bp hike. Of the 43 analysts surveyed by Bloomberg, 13 see a 50 bp hike to 10.5%. It also reports November retail sales on Thursday, expected at 6.6% y/y vs. 5.3% in October. December IPCA inflation came in at 5.91% y/y vs. expectations of 5.8% y/y, which is nearing the top of the 2.5-6.5% target range. For USD/BRL, support seen near 2.35 and then 2.30 while resistance seen near 2.40 and then 2.45.

Chile central bank holds policy meeting Thursday and is expected to keep rates steady at 4.5%. December CPI rose 3.0% y/y vs. consensus 2.9% and 2.4% in November. This is the highest rate since October 2012 and right at the center of the central bank's 2-4% target range. This may keep the bank on hold for a little while after it cut 25 bp in both October and November. The real sector is slowing, and so further easing seems likely in 2014. IP has contracted y/y for four straight months and six of the past seven, while exports have contracted y/y for three straight months. Only retail sales are showing any robustness, but GDP growth is tracking at 2.8% y/y so far in Q4 vs. 4.7% in Q3. For USD/CLP, support seen near 530 and then 525 while resistance seen near 535 and then 540.

Singapore reports December trade data Friday. NODX expected to rise 2.2% y/y vs. -8.8% in November. On Wednesday, it reports November retail sales, expected at -7.2% y/y vs. -9.4% in October. December PMI came in weak at 49.7 vs. 51.0 consensus and 50.8 in November. This is the first sub-50 reading since Feb 2013. Several components fell below 50, including production and employment. Forward-looking new orders and new export orders fell to 50.3 and 50.5, respectively, and could eventually tip below 50 as well. Electronics subindex fell to 50.1 from 51.2 in November. MAS decision to keep policy steady in October (at a tightening stance) will likely put a damper on growth this year. For USD/SGD, support seen near 1.2600 and then 1.2500, while resistance seen near 1.2700 and then 1.2750.