Emerging Market Preview: The Week Ahead

(from my colleague Dr. Win Thin)

Turkish central bank meets Tuesday and is expected to keep rates steady. The lira has held up well after the emergency rate hike in January, but bond yields remain elevated. Political tensions are picking up again ahead of the March 30 local elections, and so we cannot rule out further rate hikes ahead if Turkish markets become more unsettled. President Gul recently approved measures to close down prep schools owned by cleric Fethullah Gulen, suggesting a deepening split between Erdogan and Gulen. For USD/TRY, support seen near 2.20 while resistance seen near 2.25 and then 2.30.

South Africa reports February CPI and January retail sales Wednesday. The former is expected to rise 5.9% y/y vs. 5.8% in January, while the latter is seen rising 2.6% y/y vs. 3.5% in December. SARB Governor Marcus downplayed talk of aggressive tightening, noting that future decisions will depend on the data. Given the weak economy, we think the SARB would be happy if they got away with a "one and done" move. We think it would take a significant slide in the rand to get the SARB to hike again so for now, we see steady rates ahead. Next SARB meeting is March 27. For now, USD/ZAR remains stuck in the 10.50-11.00 range.

Taiwan reports February export orders on Thursday, expected to rise 9% y/y vs. -2.8% in January. Exports have been disappointing, with January-February combined basically flat y/y. If orders come in at consensus, the January-February combined would be up a little over 2% y/y, which points to very modest export growth ahead. Taiwan stands to suffer from the mainland China slowdown, and so policymakers should be prepared to inject some stimulus into the economy this year. For USD/TWD, support seen near 30.20 while resistance seen near 30.40.

Polish central bank releases minutes from its last policy meeting on Thursday. After that meeting, when rates were left steady at 2.5%, the bank cut its inflation forecasts and pushed out its steady rate forecast to end-Q3 from end-Q2 previously. February CPI came in lower than expected at 0.7% y/y, while official have expressed concern about the potential negative impact of Russia/Ukraine tensions and so the minutes are likely to acknowledge these downside risks. Ahead of that on Wednesday, February IP will be reported and is expected to rise 6.1% y/y. For EUR/PLN, support seen nears 4.20 while resistance seen near 4.25. 

Hong Kong reports February CPI Thursday and is expected to fall to 3.8% y/y from 4.6% in January. It also reports Q4 current account towards the end of this week. Price pressures are likely to continue falling, as they are on the mainland, while the external accounts should remain in very good shape. We see no change to the HKD peg for the foreseeable future. 

Malaysia reports February CPI Friday and is expected to remain steady at 3.4% y/y. Like Taiwan, Malaysia also stands to suffer from the mainland China slowdown, and so policymakers here should also be prepared to inject some stimulus into the economy this year. Relatively high inflation may keep the central bank on hold near-term, but some fiscal stimulus may be seen. For USD/MYR, support seen near 3.25 while resistance seen near 3.30 and then 3.35.

Brazil reports mid-March IPCA inflation Friday and is expected at 5.90% y/y vs. 5.65% in mid-February. Ahead of that on Wednesday, Brazil releases the second preview for IGP-M wholesale inflation, expected at 1.3% m/m. If so, the y/y rate would accelerate to 6.9% y/y, the highest since April 2013. Rising price pressures will make the central bank’s decisions more difficult going forward. BCB is widely expected to deliver another 25 bp hike to 11% on April 2. We think it would like to end the tightening cycle then, but may not be able to if current inflation trends continue. Next meeting after that is May 28. For USD/BRL, support seen near 2.35 and then 2.30, while resistance seen near 2.40 and then 2.45. 

Mexican central bank meets Friday and is expected to keep rates steady at 3.5%. Earlier that day, Mexico reports January retail sales and expected to drop -0.3% y/y vs. 2.2% in December. Most Mexican data have come in much softer than expected in Q1. The central bank has maintained a fairly upbeat outlook for 2014, and may do so again at this meeting by stressing what is sees as the temporary nature of the slowdown. But if softness persists into Q2, the bank will have to acknowledge this and move to a more dovish stance. For USD/MXN, support seen near 13.20 and then 13.00, while resistance seen near 13.40 and then 13.60.

Colombian central bank meets Friday and is expected to keep rates steady at 3.25%. Officials appear to be comfortable with the current monetary policy stance, as well as with recent peso weakness. Late Monday, Colombia reports January retail sales and IP. The former is expected at 6.0% y/y and the latter at 1.0% y/y. On Thursday, it reports Q4 GDP and is expected at 4.6% y/y vs. 5.1% in Q3. If weakness intensifies in 2014, we believe the central bank could cut rates again. For USD/COP, support seen near 2025 and then 2000, while resistance seen near 2050 and then 2100.