Emerging Market Preview of the Week Ahead

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

EM has started the year by extending many of the trends present towards the end of last year. The ruble is on the defensive along with Brazilian assets, while the Shanghai Composite continues to rally. The continued fall in oil prices will also ensure that the trading dynamics of importers vs. exporters will remain intact. But soon, we will be reaching the point in which secondary impacts will start to be counted as well. For example, the potential boost to the US economy from lower oil prices could counter some of the negative effect of lower energy exports for Mexico. 

On the policy side, Turkey has taken further steps to secure USD liquidity as the Fed starts to tighten. Several other EM countries will also be vigilant about the speed of currency weakness should the dollar bullish trend continue, as we expect.

Brazil reports December trade Monday, with exports expected to fall -10.5% y/y and imports expected to be flat y/y. It reports December FIPE inflation and November IP (-3.9% y/y consensus) on Thursday. Brazil then reports December IPCA inflation on Friday, expected to rise 6.43% y/y vs. 6.56% in November.

Taiwan reports December CPI Tuesday, expected to rise 0.73% y/y vs. 0.86% in November. It then reports December trade Friday, with exports expected to rise 3.4% y/y and imports expected to fall -2.6% y/y. With downside risks to mainland China growing, we think Taiwan officials will tilt more dovish in 2015, especially given the absence of any price pressures.

HSBC reports its composite China PMI for December Tuesday. China’s monthly data deluge starts Friday with CPI and PPI. No release dates have been set yet for trade, new loans, retail sales, and IP. Both HSBC and official PMI readings for December came in weaker than expected, so we think there are downside risks to China data for this month. It appears that the PBOC has pushed back any potential RRR cuts with recent relaxation of its reserve requirement rules. 

Chile reports December trade Wednesday. It then reports December CPI Thursday, expected to rise 4.8% y/y vs. 5.5% in November. Inflation is moving back towards the 2-4% target range. With the economy facing headwinds from lower commodity prices, we think the easing cycle will resume sometime in 2015 once inflation data allows it.

Malaysia reports November trade Wednesday, with exports expected to fall -0.9% y/y and imports expected to rise 8.2% y/y. It then reports November IP on Friday, expected to rise 4% y/y vs. 5% in October. Malaysia is vulnerable to the regional slowdown, and so policymakers here may also tilt more dovish in 2015.

Turkey reports November IP Thursday, expected to rise 1.8% y/y vs. 2.4% in October. Inflation remains elevated, though it is falling. December CPI came in lower than expected at 8.17% y/y, down nearly a percentage point from November and the lowest since February 2014. With the economy still sluggish, the central bank is likely to come under greater pressure to ease in Q1 2015. 

Hungary reports November IP and retail sales Thursday. Consensus is 2.0% y/y and 4.3% y/y, respectively. It then reports November PPI and trade on Friday. The central bank has been on hold since July, but deflationary pressures have deepened. We think the bank will start preparing markets for the possibility of further easing in 2015.

Mexico reports December CPI Thursday, expected to rise 4.11% y/y vs. 4.17% in November. It then reports December consumer confidence and November IP on Friday. Inflation is moving back toward the 2-4% target range, while real sector data have been firming. These trends argue for steady monetary policy by the central bank in 2015.

Czech Republic reports December CPI Friday, expected to rise 0.2% y/y vs. 0.6% in November. It also reports November industrial and construction output, as well as trade on Friday. Deflation risks remain strong, which supports the central bank’s desire to extend the koruna cap into 2016.