Emerging Markets: Preview for the Week Ahead

(from my colleague, Dr. Win Thin)

HSBC China manufacturing PMI flash reading for April comes out on Wednesday and is expected at 48.3 vs. 48.0 final in March. HSBC PMI has been below 50 for three straight months, while the official PMI has held above it (but just barely at 50.2 in February and 50.3 in March). The economy is still slowing, but we do not expect any large-scale stimulus measures. Rather, a targeted approach (such as the recent cut in required reserves for some rural banks) is likely to be maintained. We expected USD/CNY to continue trading in the 6.20-6.30 range for now. Note that PBOC fixed the pair at its highest level since early September, while spot made a new cycle high today near 6.2355 before falling back.

Singapore reports March CPI Wednesday, and is expected to rise 1.1% y/y vs. 0.4% in February. It then reports March IP on Friday, and is expected to rise 6.5% y/y vs. 12.8% in February. Note January and February data were distorted by the Lunar New Year holiday, so March will start to offer some clean reads of the economy. The MAS last week kept policy steady, but cut its 2014 inflation forecast from 2-3% to 1.5-2.5%. It also maintained a fairly upbeat growth outlook even as Q1 slowed to 5.1% y/y from 5.5% in Q4. For USD/SGD, support seen near 1.25 and then 1.2450, while resistance seen near 1.2550 and then 1.26. 

Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.0%. Core CPI has been ticking up, and although it remains well within the 0.5-3.0% target range (at 1.3% in March), the rising trend may keep the BOT a bit cautious. Still, the economy remains weak and seems unlikely to gain much traction as the political uncertainty continues. Most real sector measures are still contracting y/y and so the risks are tilted towards an eventual cut, not a hike. For USD/THB, support seen near 32.00 and then 31.50, while resistance seen near 32.50 and then 33.00. 

South Africa reports March CPI Wednesday, and is expected to remain steady at 5.9% y/y. Core CPI is seen accelerating from 5.3% to 5.4%, however. March PPI will then be reported Thursday, and is expected to remain steady at 7.7% y/y. Next SARB meeting is May 22, and we do not expect a hike then even though Governor Marcus has tilted more hawkish recently. The economy, while recovering, remains sluggish all around. A firmer rand would also make another hike in May unlikely. For USD/ZAR, support seen near 10.50 and then 10.35, while resistance seen near 10.75 and then 11.00. 

Mexico reports February INEGI retail sales on Wednesday, expected to rise 0.4% y/y vs. -0.3% in January. ANTAD sales have already been reported for February at -0.2% y/y and for March at -2.4%, suggesting further weakness ahead for INEGI sales. Mexico then reports mid-April CPI on Thursday, with headline expected at 3.53% y/y vs. 3.89% in mid-March and core expected at 3.0% y/y vs. 2.84% in mid-March. Banco de Mexico then meets Friday and is expected to keep rates steady at 3.5%. We still think the risks are still tilted towards an eventual cut, not an eventual hike, if data continue to come in weak for Q2. For USD/MXN, support seen near 13.00 and then 12.80, while resistance seen near 13.20 and 13.40.

Korea reports Q1 GDP Thursday and is expected to rise 3.8% y/y vs. 3.7% in Q4. If so, this would be the fourth straight quarter of accelerating growth, albeit modest. Korea then reports April consumer confidence on Friday, which stood at 108 in March. The economy is in recovery mode, which has kept the BOK on hold since the last 25 bp cut to 2.5% back in May 2013. The strong won is likely a growing concern, but there’s not much to be done if it is within the context of a broad-based EM rally. For USD/KRW, support seen near 1030 and then 1000, while resistance seen near 1040 and then 1050.

Central Bank of Turkey meets Thursday and is expected to keep rates steady at 10.0%. The lira has stabilized since the emergency hike in January, but inflation is still rising and so it’s too early to look for any easing yet. At 8.4% y/y in March, CPI inflation remains above the 3-7% target range. More worrisome, core CPI rose 9.3% y/y in March, the highest since April 2007. Yet the government is concerned about sluggish growth, and Erdogan has already called on the bank to cut rates. For USD/TRY, support seen near 2.10 and then 2.00, while resistance seen near 2.20 and then 2.25.

Central Bank of Russia meets Friday and is expected to keep rates steady at 7.0%. Growth rebounded in Q4 to 2.0% y/y, the strong since Q4 2012. However, the Ukraine crisis and the resulting sanctions have likely slowed the economy in 2014, with Bloomberg consensus for Q1 growth currently at 0.9%. Little improvement is seen ahead, with Q2 and Q3 growth both seen at 1.0%. We would add that the risks are likely to the downside here. Yet rising inflation (6.9% in March was the highest since June 2013) and a vulnerable ruble is likely to keep the central bank on hold for now. Performance of Russian assets will depend in large part on whether or not the Ukraine peace deal is implemented. For USD/RUB, support seen near 35.00, while resistance seen near 36.00.

Brazil reports March current account data on Friday, and is expected at -$6.3 bln vs. -$7.45 bln in February. If consensus is correct, the 12-month total would narrow from the -3.69% of GDP reading posted in February. Yet FDI still covers most of this gap, nearly 80% in February. External accounts, while worsening, are not yet at worrisome levels. Instead, we think inflation numbers will be a key factor behind Brazil sentiment. For USD/BRL, support seen near 2.20 while resistance seen near 2.25 and then 2.30.

Central bank of Colombia meets Friday and is expected to keep rates steady at 3.25%. Inflation is moving higher, reaching 2.5% y/y in March, the highest reading since November 2012. While still near the bottom of the 2-4% target range, rising inflation will likely keep the bank on hold for most of this year. Policy rate has been kept at 3.25% since the last cut in March 2013. The economy is in modest recovery mode and suggests no need for further easing. Yet the strong peso is a big wild card, with renewed strength likely to be met with more FX intervention. For USD/COP, support seen near 1900 and then 1875, while resistance seen near 1950 and then 2000.