(from my colleagues Dr. Win Thin and Ilan Solot)
The strong January US jobs report suggests that the Fed remains on track to hike rates around mid-year. Indeed, the data should allow the Fed to drop the word “patient” at its next meeting March 18, which would add to the negative EM sentiment.
Also, idiosyncratic developments in the major EM countries should continue to cast a pall on the asset class as a whole. The institutional crisis in Brazil deepens as the government’s approval ratings plummet. Exit polls for the election in India’s capital, Delhi, suggest a setback for the ruling BJP. Lastly, continued jawboning of the central bank by the government is pushing USD/TRY to record highs.
Mexico reports January CPI Monday, expected to rise 3.09% y/y vs. 4.08% in December. It then reports December IP Wednesday, expected to rise 2.7% y/y vs. 1.8% in November. Real sector data is picking up, but inflation readings continue to ease. For now, we see steady rates from Banxico. However, official statements suggest a dovish bias remains intact.
China reports January CPI Tuesday, expected to rise 1.0% y/y vs. 1.5% in December. China could report new loan and money supply data this week, but no date has been set. More easing measures are expected in the coming weeks, as the focus of policy is clearly on boosting growth.
South Africa reports Q4 unemployment and December manufacturing production Tuesday. The former is expected at 25.6% while the latter is expected to contract -1.0% y/y. Slow growth and falling inflation should keep the SARB on hold for now, but it move into dovish mode as the year progresses. Next SARB meeting is March 26, and data between now and then will determine whether we see a cut then.
Turkey reports December current account data Wednesday, expected at -$6.79 bln vs. -$5.64 bln in November. If so, the 12-month total would fall to -$45.5 bln, the lowest since December 2010. Still, even modest improvement in the fundamentals is unlikely to give much support to the lira, which continues to suffer from excessive government meddling in monetary policy.
Hungary reports January CPI Wednesday, expected at -1.1% y/y vs. -0.9% in December. The central bank also releases its minutes Wednesday. It reports Q4 GDP Friday, expected to rise 2.7% y/y vs. 3.2.% in Q3. The central bank highlighted potential for resuming rate cuts at that last meeting, so minutes will be closely watched. Next meeting is February 24. Consensus is for steady policy, but we think there is potential for a dovish surprise.
Brazil reports December retail sales Wednesday, expected to rise 2.6% y/y vs. 1.0% in November. Overall, the backdrop remains grim. Sluggish growth, high inflation, twin deficits, and power shortages are all contributing to negative Brazil sentiment. Corruption and politics is also playing a role. COPOM is likely to deliver another hike at its next meeting March 4.
Philippine central bank meets Thursday and is expected to keep rates steady at 4.0%. Headline CPI inflation was 2.4% y/y in January, and is in the bottom half of the 2-4% target range. Core is falling too. While the economy has some momentum, we think the central bank will move to an easing bias this year after hiking 50 bp in H2 2014.
India reports December IP Thursday, expected to rise 1.6% y/y vs. 3.8% in November. It also reports January CPI, expected to rise 5.6% y/y vs. 5.0% in December. If so, this would be the second straight month of acceleration and would justify the RBI’s cautious approach. Easing is likely to continue this year, but at a very modest pace.
Chile central bank meets Thursday and is expected to keep rates steady at 3.0%. CPI inflation eased for the third straight month in January to 4.5% y/y, but remains above the 2-4% target range. We see rate cuts resuming in Q2 if the current inflation and growth trajectories continue.
Peru central bank meets Thursday and is expected to keep rates steady at 3.25%. CPI inflation eased for the second straight month in January to 3.07% y/y, but remains just above the 1-3% target range. We see rate cuts continuing if the current inflation trajectory remains on track.
Czech Republic reports Q4 GDP Friday, expected to rise 1.9% y/y vs. 2.4% in Q3. The slowdown should continue, which would justify the central bank’s recent move to push the timing for dropping the koruna cap until “at least H2 2016” from “at least 2016 previously.”
Poland reports Q4 GDP Friday, expected to rise 3.1% y/y vs. 3.3% in Q3. It also reports December trade and current account data, as well as January CPI (expected at -1.2% y/y vs. -1.0% in December). With deflation risks deepening, we think the central bank will resume cutting rates. Next meeting is March 4, and a rate cut then is very possible.
The rebound in oil prices and the sliver of hope of a peace treaty in Ukraine is serving to soften a few of the trends in EM assets in recent months. We doubt that this is the start of a new trend, and more likely just a positioning adjustment. Although oil can continue to correct higher, we think the downward pressure will remain intact. And even if an agreement in the Ukraine is reached, the implementation and longevity of a deal will be highly debatable.
The strong January US jobs report suggests that the Fed remains on track to hike rates around mid-year. Indeed, the data should allow the Fed to drop the word “patient” at its next meeting March 18, which would add to the negative EM sentiment.
Also, idiosyncratic developments in the major EM countries should continue to cast a pall on the asset class as a whole. The institutional crisis in Brazil deepens as the government’s approval ratings plummet. Exit polls for the election in India’s capital, Delhi, suggest a setback for the ruling BJP. Lastly, continued jawboning of the central bank by the government is pushing USD/TRY to record highs.
Mexico reports January CPI Monday, expected to rise 3.09% y/y vs. 4.08% in December. It then reports December IP Wednesday, expected to rise 2.7% y/y vs. 1.8% in November. Real sector data is picking up, but inflation readings continue to ease. For now, we see steady rates from Banxico. However, official statements suggest a dovish bias remains intact.
China reports January CPI Tuesday, expected to rise 1.0% y/y vs. 1.5% in December. China could report new loan and money supply data this week, but no date has been set. More easing measures are expected in the coming weeks, as the focus of policy is clearly on boosting growth.
South Africa reports Q4 unemployment and December manufacturing production Tuesday. The former is expected at 25.6% while the latter is expected to contract -1.0% y/y. Slow growth and falling inflation should keep the SARB on hold for now, but it move into dovish mode as the year progresses. Next SARB meeting is March 26, and data between now and then will determine whether we see a cut then.
Turkey reports December current account data Wednesday, expected at -$6.79 bln vs. -$5.64 bln in November. If so, the 12-month total would fall to -$45.5 bln, the lowest since December 2010. Still, even modest improvement in the fundamentals is unlikely to give much support to the lira, which continues to suffer from excessive government meddling in monetary policy.
Hungary reports January CPI Wednesday, expected at -1.1% y/y vs. -0.9% in December. The central bank also releases its minutes Wednesday. It reports Q4 GDP Friday, expected to rise 2.7% y/y vs. 3.2.% in Q3. The central bank highlighted potential for resuming rate cuts at that last meeting, so minutes will be closely watched. Next meeting is February 24. Consensus is for steady policy, but we think there is potential for a dovish surprise.
Brazil reports December retail sales Wednesday, expected to rise 2.6% y/y vs. 1.0% in November. Overall, the backdrop remains grim. Sluggish growth, high inflation, twin deficits, and power shortages are all contributing to negative Brazil sentiment. Corruption and politics is also playing a role. COPOM is likely to deliver another hike at its next meeting March 4.
Philippine central bank meets Thursday and is expected to keep rates steady at 4.0%. Headline CPI inflation was 2.4% y/y in January, and is in the bottom half of the 2-4% target range. Core is falling too. While the economy has some momentum, we think the central bank will move to an easing bias this year after hiking 50 bp in H2 2014.
India reports December IP Thursday, expected to rise 1.6% y/y vs. 3.8% in November. It also reports January CPI, expected to rise 5.6% y/y vs. 5.0% in December. If so, this would be the second straight month of acceleration and would justify the RBI’s cautious approach. Easing is likely to continue this year, but at a very modest pace.
Chile central bank meets Thursday and is expected to keep rates steady at 3.0%. CPI inflation eased for the third straight month in January to 4.5% y/y, but remains above the 2-4% target range. We see rate cuts resuming in Q2 if the current inflation and growth trajectories continue.
Peru central bank meets Thursday and is expected to keep rates steady at 3.25%. CPI inflation eased for the second straight month in January to 3.07% y/y, but remains just above the 1-3% target range. We see rate cuts continuing if the current inflation trajectory remains on track.
Czech Republic reports Q4 GDP Friday, expected to rise 1.9% y/y vs. 2.4% in Q3. The slowdown should continue, which would justify the central bank’s recent move to push the timing for dropping the koruna cap until “at least H2 2016” from “at least 2016 previously.”
Poland reports Q4 GDP Friday, expected to rise 3.1% y/y vs. 3.3% in Q3. It also reports December trade and current account data, as well as January CPI (expected at -1.2% y/y vs. -1.0% in December). With deflation risks deepening, we think the central bank will resume cutting rates. Next meeting is March 4, and a rate cut then is very possible.
Emerging Markets: Preview of the Week Ahead
Reviewed by Marc Chandler
on
February 09, 2015
Rating:
Reviewed by Marc Chandler
on
February 09, 2015
Rating:
