(from my colleagues Dr. Win Thin and Ilan Solot)
Yields also continue to come lower in several EM countries, including Poland, Hungary, Korea and Turkey. This is in part due to lower energy costs, but EM rates are also following yields down in major countries. Looking ahead, we still see a bumpy road for EM, but also a deceleration of losses and some differentiation taking hold. Turkey and Mexico, are good candidates to lead the rebound, for example.
China reports December trade data Tuesday, with exports seen rising 6.0% y/y and imports seen falling -6.2% y/y. Taiwan’s trade data was much worse than expected, pointing to potential weakness in the mainland trade data. New loan and money supply data should come out sometime this week as well, but no date has been set. Overall, the markets are braced for weak economic data out of China, which has had limited impact so far given fiscal and monetary stimulus that has been undertaken.
Turkey reports November current account data Tuesday, expected at -$5.4 bln vs. -$2.0 bln in October. The trade deficit that month was slightly higher than expected, and so there are some upside risks for the current account too. Still, the improving trend in the external balances is likely to persist in 2015 due to lower energy and commodity prices. This will help inflation too, and we expect the central bank to resume easing in the coming months.
Poland reports November trade and current account data Tuesday, with the former expected at EUR100 mln and the latter at –EUR452 mln. National Bank of Poland meets Wednesday and is expected to keep rates steady at 2.0%. Poland then reports December CPI Thursday, expected at -0.9% y/y vs. -0.6% in November. Given deepening deflation risks, we think there is a risk of a dovish surprise. If not, we do think the central bank will eventually resume cutting rates in H1 2015.
India reports December WPI on Wednesday, expected to rise 0.4% y/y vs. flat in November. On Monday, India reported December CPI at 5.0% y/y vs. 5.3% consensus and 4.4% in November, though the uptick was due mostly to the fuel subsidy cuts. Given the one-off nature of this impact, we think the RBI will consider cutting rates in H1 2015.
Hungary reports December CPI on Wednesday, expected at -0.6% y/y vs. -0.7% in November. Deflation risks are persisting, and argue for resumed easing in 2015. External sector looks to be a headwind, as exports contracted -5.5% y/y in USD terms in November.
South Africa reports November retail sales on Wednesday, expected to rise 2.0% y/y vs. 3.4% in October. On Monday, it reported November manufacturing production at -1.3% y/y vs. +1.9% consensus and 2.2% in October. Weakness in the economy is likely to persist, and supports our view that the SARB tightening cycle is over.
Brazil reports November retail sales on Wednesday, expected at -0.4% y/y vs. +1.8% in October. Auto sales that month were weak at -3% y/y, and support the notion of a weak headline retail sales reading. Yet the central bank remains on track to continue hiking rates at its next policy meeting January 21.
Bank of Korea meets Thursday and is expected to keep rates steady at 2.0%. A small handful of analysts are looking for a 25 bp cut to 1.75%. We do think there is a small chance of a dovish surprise. CPI rose only 0.8% y/y in December, the lowest rate since September 1999 and well below the 2.5-3.5% target. We think the BOK will cut rates this year, as headwinds on the economy remain strong.
Singapore reports November retail sales on Thursday, expected to rise 7.0% y/y vs. 8.1% in October. It then reports December trade on Friday, with NODX expected at -2.2% y/y vs. +1.6% in November. CPI fell -0.3% y/y in November, and persistent deflationary risks are building. In light of recent weakness in the real sector data, we think the MAS will ease at its next policy meeting in April by adjust the S$NEER.
Bank Indonesia meets Thursday and is expected to keep rates steady at 7.75%. CPI inflation jumped to 8.4% y/y in December due to the fuel subsidy cuts. This is well above the 3-5% target range, but the central bank may want to gauge the potential second round impact before hiking again.
Central bank of Chile meets Thursday and is expected to keep rates steady at 3.0%. Lower oil and energy prices helped lower CPI inflation to 4.6% y/y in December, the lowest since August. With inflation likely to move back into the 2-4% target range, the central bank will likely resume its easing cycle in H1 2015.
Central bank of Peru meets Thursday and is expected to keep rates steady at 3.5%. Inflation moved back above the 1-3% target range for all of Q4, and has kept the bank on hold since the last 25 bp cut to 3.5% back in September. The economy remains sluggish, and so we think the central bank will resume cutting when the inflation trajectory allows it.
Colombia reports November IP and retail sales on Friday. The former is expected to rise 0.6% y/y, while the latter is expected to rise 9.1% y/y. The economy has been slowing lately, with lower oil prices being a major factor. As such, we believe the central bank’s tightening cycle has ended, and may be reversed this year. Officials still seem to favor a weaker peso, but this is a dangerous game to be playing in this current market environment.
EM is starting the week facing several familiar cross currents. The dollar is strengthening again, oil prices are still falling, but equities are moving higher. This constellation seems to suggest a continuation of our call further weakness in EM, but for Asian assets to outperform in the short-term.
Yields also continue to come lower in several EM countries, including Poland, Hungary, Korea and Turkey. This is in part due to lower energy costs, but EM rates are also following yields down in major countries. Looking ahead, we still see a bumpy road for EM, but also a deceleration of losses and some differentiation taking hold. Turkey and Mexico, are good candidates to lead the rebound, for example.
China reports December trade data Tuesday, with exports seen rising 6.0% y/y and imports seen falling -6.2% y/y. Taiwan’s trade data was much worse than expected, pointing to potential weakness in the mainland trade data. New loan and money supply data should come out sometime this week as well, but no date has been set. Overall, the markets are braced for weak economic data out of China, which has had limited impact so far given fiscal and monetary stimulus that has been undertaken.
Turkey reports November current account data Tuesday, expected at -$5.4 bln vs. -$2.0 bln in October. The trade deficit that month was slightly higher than expected, and so there are some upside risks for the current account too. Still, the improving trend in the external balances is likely to persist in 2015 due to lower energy and commodity prices. This will help inflation too, and we expect the central bank to resume easing in the coming months.
Poland reports November trade and current account data Tuesday, with the former expected at EUR100 mln and the latter at –EUR452 mln. National Bank of Poland meets Wednesday and is expected to keep rates steady at 2.0%. Poland then reports December CPI Thursday, expected at -0.9% y/y vs. -0.6% in November. Given deepening deflation risks, we think there is a risk of a dovish surprise. If not, we do think the central bank will eventually resume cutting rates in H1 2015.
India reports December WPI on Wednesday, expected to rise 0.4% y/y vs. flat in November. On Monday, India reported December CPI at 5.0% y/y vs. 5.3% consensus and 4.4% in November, though the uptick was due mostly to the fuel subsidy cuts. Given the one-off nature of this impact, we think the RBI will consider cutting rates in H1 2015.
Hungary reports December CPI on Wednesday, expected at -0.6% y/y vs. -0.7% in November. Deflation risks are persisting, and argue for resumed easing in 2015. External sector looks to be a headwind, as exports contracted -5.5% y/y in USD terms in November.
South Africa reports November retail sales on Wednesday, expected to rise 2.0% y/y vs. 3.4% in October. On Monday, it reported November manufacturing production at -1.3% y/y vs. +1.9% consensus and 2.2% in October. Weakness in the economy is likely to persist, and supports our view that the SARB tightening cycle is over.
Brazil reports November retail sales on Wednesday, expected at -0.4% y/y vs. +1.8% in October. Auto sales that month were weak at -3% y/y, and support the notion of a weak headline retail sales reading. Yet the central bank remains on track to continue hiking rates at its next policy meeting January 21.
Bank of Korea meets Thursday and is expected to keep rates steady at 2.0%. A small handful of analysts are looking for a 25 bp cut to 1.75%. We do think there is a small chance of a dovish surprise. CPI rose only 0.8% y/y in December, the lowest rate since September 1999 and well below the 2.5-3.5% target. We think the BOK will cut rates this year, as headwinds on the economy remain strong.
Singapore reports November retail sales on Thursday, expected to rise 7.0% y/y vs. 8.1% in October. It then reports December trade on Friday, with NODX expected at -2.2% y/y vs. +1.6% in November. CPI fell -0.3% y/y in November, and persistent deflationary risks are building. In light of recent weakness in the real sector data, we think the MAS will ease at its next policy meeting in April by adjust the S$NEER.
Bank Indonesia meets Thursday and is expected to keep rates steady at 7.75%. CPI inflation jumped to 8.4% y/y in December due to the fuel subsidy cuts. This is well above the 3-5% target range, but the central bank may want to gauge the potential second round impact before hiking again.
Central bank of Chile meets Thursday and is expected to keep rates steady at 3.0%. Lower oil and energy prices helped lower CPI inflation to 4.6% y/y in December, the lowest since August. With inflation likely to move back into the 2-4% target range, the central bank will likely resume its easing cycle in H1 2015.
Central bank of Peru meets Thursday and is expected to keep rates steady at 3.5%. Inflation moved back above the 1-3% target range for all of Q4, and has kept the bank on hold since the last 25 bp cut to 3.5% back in September. The economy remains sluggish, and so we think the central bank will resume cutting when the inflation trajectory allows it.
Colombia reports November IP and retail sales on Friday. The former is expected to rise 0.6% y/y, while the latter is expected to rise 9.1% y/y. The economy has been slowing lately, with lower oil prices being a major factor. As such, we believe the central bank’s tightening cycle has ended, and may be reversed this year. Officials still seem to favor a weaker peso, but this is a dangerous game to be playing in this current market environment.
Emerging Market Preview of the Week Ahead
Reviewed by Marc Chandler
on
January 12, 2015
Rating:
Reviewed by Marc Chandler
on
January 12, 2015
Rating:
