Emerging Markets: The Week Ahead

(from my colleague Dr. Win Thin)

Korea reports March CPI Tuesday and is expected to rise 1.4% y/y vs. 1.0% in February.  It will also report March trade Tuesday, with exports expected to rise 4.2% y/y and imports to rise 3.5%.  The economy remains sluggish even as inflation remains below the target range, but the BOK seems content to keep rates steady at 2.5% since May 2013.  No action expected at the next meeting on April 10.  For USD/KRW, support seen near 1060 and then 1050, while resistance seen near 1070 and then 1080.

Official China PMI for March will be reported Tuesday and is expected to fall to 50.1 from 50.2 in February.  Final HSBC PMI will also be reported Tuesday and is expected to remain steady from the flash reading of 48.1.  Official and HSBC non-manufacturing PMI readings will be reported Thursday, but the bulk of the monthly data dump will be seen next week.  We expect further weakness in China data, but would downplay talk of a new round of stimulus by the authorities.  We expect USD/CNY to continue trading firmer, perhaps in a new range of 6.20-6.30 in Q2.

Indonesia reports February trade and March CPI Tuesday.  Headline inflation is seen at 7.35% y/y vs. 7.75% in February, while core is seen at 4.5% vs. 4.57% previously.  Bank Indonesia helped improve market sentiment with aggressive moves last year, and that is paying off now with lower inflation.  Further rate hikes appear unlikely for now, which should allow the economy to gain some traction.  For USD/IDR, support seen near 11250 and then 11000, while resistance seen near 11500.
 

Thailand reports February trade and March CPI Tuesday.  Headline inflation is seen at 2.10% y/y vs. 1.96% in February, while core is seen at 1.4% vs. 1.22% previously.  Core remains near the bottom of the 0.5-3.0% target range, and so BOT has leeway to cut rates again as the economic outlook remains poor.  Next policy meeting is April 23.  For USD/THB, support seen near 32.00 while resistance seen near 32.50 and then 33.00.

The Reserve Bank of India meets Tuesday and is expected to keep rates steady.  Like Bank Indonesia, the RBI took aggressive action last year and helped turn sentiment around.  Inflation is falling as a result, and so further tightening appears unlikely for now.  Optimism about the upcoming general elections is also likely to boost Indian assets.  For USD/INR, support seen near 59.00 while resistance seen near 60.00 and then 61.00. 

Brazil reports March trade on Tuesday, with exports seen -7% y/y and imports -5% y/y.  The central bank decision will then be announced Wednesday and is widely expected to hike rates 25 bp to 11%.  Markets have adjusted expectations for further hikes, with increased risk of a May 28 hike.  The central bank's inflation report last Thursday raised its inflation forecast this year to 6.2% from 5.6% forecast in December.  The bank also noted that uncertainty over future fuel and energy prices administered by the government poses a risk to inflation.  We still think a stronger real will be accepted as part of the battle against inflation, and that policymakers there will not try to prevent this.  Earlier on Wednesday, Brazil reports February IP and March FIPE inflation.  For USD/BRL, support seen near 2.25 and then 2.20, while resistance seen near 2.30 and then 2.35.

Russia reports Q1 current account and Q4 GDP Thursday.  GDP is expected to rise 1.6% y/y vs. 1.2% in Q3.  However, the outlook for 2014 remains weak in light of recent developments.  We do think Russia can muddle through, especially if oil prices remain near $100.  Tensions in Ukraine may subside after Putin contacted Obama over the weekend.  For USD/RUB, support seen near 35.00 and then 34.00, while resistance seen near 36.00 and then 37.00. 

Turkey reports March CPI Thursday and is expected to rise 8.12% y/y vs. 7.89% in February.  Given relative firmness in the lira since the emergency January rate hike, the central bank has leeway to wait it out for a while.  For now, it doesn’t look like further rate hikes are needed.  Local elections show Erdogan and his AKP maintaining popular support with about 45% of the vote.  We do not think political tensions will ebb, especially with Erdogan threatening retribution for his political foes.  For USD/TRY, support seen near 2.15 and then 2.10, while resistance seen near 2.20 and then 2.25.

Philippines reports March CPI Friday and is expected to remain steady at 4.1% in February.  The central bank kept rates steady at 3.5% last week, as expected.  With core inflation expected to remain steady at 3% y/y in March, there is little rush to hike rates.  For USD/PHP, support seen near 44.50 and then 44.00, while resistance seen near 45.00 and then 45.50.

Czech Republic reports February retail sales Friday, expected to rise 6.0% y/y vs. 6.4% in January.  The economic data are showing some improvement, but forward guidance from the central bank suggests no change in policy until 2015.  For EUR/CZK, support seen near 27.25 and then 27.00, while resistance seen near 27.50 and then 27.75.

Mexico central bank will release minutes of its policy meeting Friday.  The accompanying statement after last week’s decision to keep rates steady was much more dovish than previously seen, and so we would expect the minutes to fully reflect this.  Earlier in the week, it reports March PMI on Tuesday and consumer confidence on Thursday.  For USD/MXN, support seen near 13.00 and then 12.80, while resistance seen near 13.20 and then 13.40.

Colombia central bank will release minutes of its policy meeting Friday.  We think the central bank would like to remain on hold, but further peso strength could push it into another rate cut this year if the economy remains sluggish.  For USD/COP, support seen near 1950 and then 1900, while resistance seen near 2000 and then 2050.