Emerging Market Preview: The Week Ahead

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

Taiwan reports April CPI Tuesday, expected to rise 1.5% y/y vs. 1.6% in March. It then reports April trade on Wednesday, with exports expected to rise 5.5% y/y and imports to rise 7.2% y/y. Export orders have picked up, pointing to stronger exports ahead. Overall, the economy is holding up well despite the mainland slowdown and so we see the central bank staying on hold this year. For USD/TWD, support seen near 30.00 and then 29.80, resistance near 30.20 and then 30.40.

Philippines report April CPI Tuesday, expected to rise 4.1% y/y vs. 3.9% in March. Core is seen rising to 2.9% from 2.8% in March. The central bank then meets Thursday and is expected to keep rates steady at 3.5%. However, Governor Tetangco’s recent comments suggest alternative measures are likely. Most expect the bank to continue raising required reserves to contain liquidity growth. Financial stability, rather than inflation, seems to be the main official concern at the moment, especially given the growth of money supply. M3 data was released last week and showed another robust increase of 34%, the 9th consecutive month of +30% growth. Lastly, it reports March exports on Friday, expected to rise 12.4% y/y vs. 24.4% in February. For USD/PHP, support seen near 44.25 and then 44.00, resistance near 45.00 and then 45.50.

Mexico reports April consumer confidence Tuesday, expected at 89.8 vs. 88.8 in March. It then reports April CPI on Thursday, with headline expected to rise 3.56% y/y and core by 3.18% y/y. Banco de Mexico releases meeting minutes on Friday. Data continue to come in soft. April PMI was weaker than expected, with manufacturing at 51.1 vs. 53.5 consensus and 52.7 in March. Non-manufacturing was at 50.6 vs. 51.2 consensus and 51.2 in March. This was very disappointing in light of the firmer US data so far in Q2. If weakness persists in Q2, think Banxico will have to tilt more dovish and cut rates in H2. For USD/MXN, support seen near 13.00 and then 12.80, resistance near 13.20 and then 13.40.

Czech Republic reports March trade Tuesday, followed by IP (8.0% y/y consensus), retail sales (7.3% y/y consensus), and construction on Wednesday. The central bank then meets later Wednesday and is expected to keep policy steady. The economy continues to rebound, but is not strong enough to warrant a change in policy yet. Officials suggest current policies will continue into 2015. For EUR/CZK, support seen near 27.25 and then 27.00, resistance near 27.50 and then 27.75.

Poland central bank meets Wednesday and is expected to keep rates steady at 2.5%. Most central bank officials are saying rates will stay steady until at least end-Q3, but some doves advocate no change until 2015. The decision is clearly data-dependent. March data was on the soft side, and so the central bank will be watching to see if this carries over into Q2. For EUR/PLN, support seen near 4.20 and then 4.18, resistance near 4.22 and then 4.24.

Brazil reports April FIPE and March PPI on Tuesday, with both likely to show rising price pressures. March IP comes out on Wednesday, expected at -3.0% y/y vs. +5.0% in February. Note that PMI fell below 50 to 49.3 in April, pointing to manufacturing weakness ahead. Brazil then reports April IPCA on Friday (expected to rise 6.41% y/y vs. 6.15% in March) as well as the first May preview for IGP-M wholesale inflation. COPOM next meets May 28, and it will be tough to hold rates steady if the inflation measures continue to worsen. For USD/BRL, support seen near 2.20 and then 2.15, resistance near 2.25 and then 2.30.

Chile reports April trade on Wednesday. It then reports April CPI on Thursday, expected to rise 3.9% y/y vs. 3.5% in March. Ahead of that on Tuesday, the central bank releases minutes from its April 17 meeting, when it kept rates steady at 4%. With price pressures rising, we think the central bank will remain on hold again at its next meeting May 15. For USD/CLP, support seen near 560 and then 540, resistance near 570 and then 580.

China April data deluge starts with trade on Thursday, as exports expected at -2.8% y/y and imports at -2.0% y/y. It then reports CPI and PPI on Friday, expected at +2.1% y/y and -1.9% y/y, respectively. Money and loan data, IP, and retail sales are all due out next week. Final April HSBC manufacturing PMI came in at 48.1 vs. the flash 48.4. While a bit lower than expected, it does not signal any major slowdown. With real sector data stabilizing (albeit at modest levels), we downplay talk of another large-scale stimulus effort. In this framework of slow growth, we expect USD/CNY to continue drifting upward within a 6.20-6.30 range in Q2.

Turkey reports March IP on Thursday, expected at 3.7% y/y vs. 4.9% in February. Earlier today, it reported April CPI at a higher than expected 9.4% y/y vs. 8.4% in March. Even worse, core CPI rose 9.7% y/y vs. 9.3% in March. Inflation remains too high for the central bank to cut rates, where Erdogan has already started jawboning for lower rates. Yet the economy remains weak. Until inflation peaks, it will be hard for the central bank to start the easing cycle. Perhaps in H2, but right now, inflation is well above the 3-7% target range. For USD/TRY, support seen near 2.10 and then 2.00, while resistance seen near 2.15 and then 2.20.

Hungary reports March retail sales on Tuesday. This will be followed by March IP and trade on Thursday. The economy continues to recover, and we believe the easing cycle has come to an end with last month’s 10 bp cut to 2.5%. Minutes out next week on May 14 should provide some more clues ahead of the May 27 central bank meeting. For EUR/HUF, support seen near 305 and then 300, resistance near 310 and then 315.

Indonesia central bank meets Thursday and is expected to keep rates steady at 7.5%. Earlier today, Q1 GDP was reported at 5.2% y/y vs. 5.6% expected and 5.7% in Q4. CPI inflation continues to ease, albeit slowly, and should keep the central bank on hold for now. If economic weakness persists, Bank Indonesia could move to a more dovish stance in H2 2014. For USD/IDR, support seen near 11500 and then 11250, while resistance seen near 11750 and then 12000.

Malaysia central bank meets Thursday and is expected to keep rates steady at 3.0%. On Wednesday, it reports March trade, with exports expected to rise 9.2% y/y and imports by 5.7% y/y. The economy is in recovery mode, with GDP growth expected near 5% in both 2014 and 2015. As such, we see the central bank on hold for this year, especially with inflation at a relatively high 3% in March. For USD/MYR, support seen near 3.25 and then 3.20, resistance near 3.30 and then 3.35.

Peru central bank meets Thursday and is expected to keep rates steady at 4.0%. CPI inflation for April was reported last week at 3.52% y/y, up from 3.38% in March and slightly higher than expected. It is above the 1-3% target range but the central bank should remain on hold for the time being given the risks of slowing growth. For USD/PEN, support seen near 2.80 and then 2.78, resistance near 2.81 and then 2.82.

Bank of Korea meets Friday and is expected to keep rates steady at 2.5%. April data (trade, PMI) have been firm so far as the economic recovery continues. This should keep BOK on hold for now, despite below-target inflation of 1.5% in April. For USD/KRW, support seen near 1030 and then 1000, resistance near 1040 and then 1050.