(from my colleague Dr. Win Thin)
Many factors continue to work against EM FX. The dollar is enjoying broad-based strength against the majors, which has spilled over into EM currencies as well. Commodity prices are stabilizing, but remain near the cycle lows. And most importantly, US interest rates are moving higher in anticipation of Fed action, as the strong US jobs report has markets looking for a mid-year Fed lift-off.
Mexico reports February CPI Monday. Headline is expected to rise 3.03% y/y vs. 3.07% in January, while core is expected to rise 2.43% y/y. February ANTAD retail sales will be reported Tuesday, expected to rise 5.1% y/y vs. 5.5% in January. Mexico then reports January IP Friday, expected to rise 2.2% y/y vs. 3.0% in December.
China reports February CPI and PPI Tuesday. The former is expected to rise 1.0% y/y, while the latter is expected to fall -4.3% y/y. China new loan and money data could come out this week, but no date has been set. February retail sales and IP will be reported Wednesday. Markets are comfortable with modestly weaker economic data, as the recent growth target of “around 7%” for this year had very little impact on sentiment.
Hungary reports February CPI Tuesday, expected to fall -1.2% y/y vs. -1.4% in January. It then reports January trade on Wednesday. Hungary central bank also releases minutes on Wednesday. The central bank next meets March 24, the market is split. Of the 9 analysts polled by Bloomberg, 2 see no move, 2 see a 10 bp cut, 4 see a 20 bp cut, and 1 sees a 25 bp cut. Rates have been at 2.10% since the last 20 bp cut back in July 2014.
Brazil releases the first preview of March IGP-M wholesale inflation Tuesday, expected to rise 0.61% m/m. If sustained, the y/y rate would fall to 2.8% from 3.9% in February, and would be the lowest since March 2010. Other measures of wholesale inflation like PPI are also falling. While this should help prices at the consumer level, administered prices are being raised and so IPCA inflation may rise still. COPOM minutes for last week’s meeting will be released Thursday. Brazil then reports January retail sales Friday, expected to fall -1.3% y/y after rising 0.3% in December.
Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.0%. However, the market is split. Of the 22 analysts polled by Bloomberg, 16 see no change and 6 see a 25 bp cut to 1.75%. Core inflation rose 1.4% in February, right near the middle of the 0.5-3.0% target range. Headline inflation was -0.5% y/y in February, and could drag core lower. We think there is a chance of a dovish surprise this week. If not, we think the BOT will cut rates later in Q2.
Turkey reports January current account Wednesday, expected at -$2.6 bln. If so, the 12-month total would fall to -$43.5 bln, the lowest since November 2010. External balances continue to improve, but Turkey’s weak spot is high inflation coupled with political pressure to cut rates ahead of June elections.
Bank of Korea meets Thursday and is expected to keep rates steady at 2.0%. Only 2 of the 17 analysts polled by Bloomberg sees a 25 bp cut to 1.75%. However, with inflation well below the 2.5-3.5% target range in February (at 0.5% y/y), we think there is a chance of a dovish surprise. Last move was a 25 bp cut in October. If no cut is seen in March, then one is likely in Q2.
South Africa reports January manufacturing production Thursday, expected to be flat y/y vs. 1.1% in December. With the economy still facing strong headwinds and inflation back in the 3-6% target range, we think SARB tightening is off the table now. Indeed, it may tilt more dovish in the coming months if current economic trends continue. Next meeting is March 26, and will be close watched for clues on its likely stance.
India reports February CPI and January IP Thursday. After the surprise rate cut by the RBI last week, it’s clear the easing cycle will continue. However, the pace and timing will be unpredictable. We think India is the best positioned in the so-called Fragile Five to withstand current selling pressures in EM.
Central bank of Peru meets Thursday and is expected to keep rates steady at 3.25%. Only 2 of the 13 analysts polled by Bloomberg sees a 25 bp cut to 3.0%. However, with inflation moving back into the 1-3% target range in February (at 2.8% y/y), we think there is a chance of a dovish surprise. Last move was a 25 bp cut in January. If no cut is seen in March, then one is very likely in Q2.
Poland reports February CPI Friday, expected to fall -1.3% y/y. The central bank next meets April 15, and no move is seen then after the 50 bp cut to 1.5% this month. While the bank has signaled the end of the easing cycle, it will depend on how the data come in. Deeper deflation or slower than expected growth could lead to a resumption later in the year. For now, we see steady rates.
Central Bank of Russia meets Friday and is expected to cut rates 100 bp to 14%. However, the market is split. Of the 26 analysts polled by Bloomberg, 10 see no change, 15 see a 100 bp cut, and one sees a 250 bp cut. This would be the second rate cut in the cycle, and comes as the ruble is at the strong end of recent trading ranges. The first cut came on January 30, when it cut 200 bp to 15%. With inflation running at 16.7% y/y in February, real rates are already negative and yet the ruble has firmed over the course of the past month.
Colombia reports January retail sales and IP Friday. The former is expected to rise 8.2% y/y, while the latter is expected to rise 1.4% y/y. The central bank next meets March 20, and Is expected to keep rates steady at 4.5%. The last move was a 25 bp hike back in August. While the economy has been softening, inflation has picked up. At 4.4% y/y in February, inflation moved above the 2-4% target range for the first time since May 2009. For now, we see steady rates until the inflation trajectory improves.
EM is starting off the week on its back foot, continuing the trend seen for most of this past month. The dollar is making multi-year highs against many EM currencies, including BRL, COP, MXN, TRY, ZAR, IDR, and SGD. MSCI EM continues to sell off, while EM local currency bond yields are moving higher. The EM backdrop is likely to remain negative.
Many factors continue to work against EM FX. The dollar is enjoying broad-based strength against the majors, which has spilled over into EM currencies as well. Commodity prices are stabilizing, but remain near the cycle lows. And most importantly, US interest rates are moving higher in anticipation of Fed action, as the strong US jobs report has markets looking for a mid-year Fed lift-off.
Mexico reports February CPI Monday. Headline is expected to rise 3.03% y/y vs. 3.07% in January, while core is expected to rise 2.43% y/y. February ANTAD retail sales will be reported Tuesday, expected to rise 5.1% y/y vs. 5.5% in January. Mexico then reports January IP Friday, expected to rise 2.2% y/y vs. 3.0% in December.
China reports February CPI and PPI Tuesday. The former is expected to rise 1.0% y/y, while the latter is expected to fall -4.3% y/y. China new loan and money data could come out this week, but no date has been set. February retail sales and IP will be reported Wednesday. Markets are comfortable with modestly weaker economic data, as the recent growth target of “around 7%” for this year had very little impact on sentiment.
Hungary reports February CPI Tuesday, expected to fall -1.2% y/y vs. -1.4% in January. It then reports January trade on Wednesday. Hungary central bank also releases minutes on Wednesday. The central bank next meets March 24, the market is split. Of the 9 analysts polled by Bloomberg, 2 see no move, 2 see a 10 bp cut, 4 see a 20 bp cut, and 1 sees a 25 bp cut. Rates have been at 2.10% since the last 20 bp cut back in July 2014.
Brazil releases the first preview of March IGP-M wholesale inflation Tuesday, expected to rise 0.61% m/m. If sustained, the y/y rate would fall to 2.8% from 3.9% in February, and would be the lowest since March 2010. Other measures of wholesale inflation like PPI are also falling. While this should help prices at the consumer level, administered prices are being raised and so IPCA inflation may rise still. COPOM minutes for last week’s meeting will be released Thursday. Brazil then reports January retail sales Friday, expected to fall -1.3% y/y after rising 0.3% in December.
Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.0%. However, the market is split. Of the 22 analysts polled by Bloomberg, 16 see no change and 6 see a 25 bp cut to 1.75%. Core inflation rose 1.4% in February, right near the middle of the 0.5-3.0% target range. Headline inflation was -0.5% y/y in February, and could drag core lower. We think there is a chance of a dovish surprise this week. If not, we think the BOT will cut rates later in Q2.
Turkey reports January current account Wednesday, expected at -$2.6 bln. If so, the 12-month total would fall to -$43.5 bln, the lowest since November 2010. External balances continue to improve, but Turkey’s weak spot is high inflation coupled with political pressure to cut rates ahead of June elections.
Bank of Korea meets Thursday and is expected to keep rates steady at 2.0%. Only 2 of the 17 analysts polled by Bloomberg sees a 25 bp cut to 1.75%. However, with inflation well below the 2.5-3.5% target range in February (at 0.5% y/y), we think there is a chance of a dovish surprise. Last move was a 25 bp cut in October. If no cut is seen in March, then one is likely in Q2.
South Africa reports January manufacturing production Thursday, expected to be flat y/y vs. 1.1% in December. With the economy still facing strong headwinds and inflation back in the 3-6% target range, we think SARB tightening is off the table now. Indeed, it may tilt more dovish in the coming months if current economic trends continue. Next meeting is March 26, and will be close watched for clues on its likely stance.
India reports February CPI and January IP Thursday. After the surprise rate cut by the RBI last week, it’s clear the easing cycle will continue. However, the pace and timing will be unpredictable. We think India is the best positioned in the so-called Fragile Five to withstand current selling pressures in EM.
Central bank of Peru meets Thursday and is expected to keep rates steady at 3.25%. Only 2 of the 13 analysts polled by Bloomberg sees a 25 bp cut to 3.0%. However, with inflation moving back into the 1-3% target range in February (at 2.8% y/y), we think there is a chance of a dovish surprise. Last move was a 25 bp cut in January. If no cut is seen in March, then one is very likely in Q2.
Poland reports February CPI Friday, expected to fall -1.3% y/y. The central bank next meets April 15, and no move is seen then after the 50 bp cut to 1.5% this month. While the bank has signaled the end of the easing cycle, it will depend on how the data come in. Deeper deflation or slower than expected growth could lead to a resumption later in the year. For now, we see steady rates.
Central Bank of Russia meets Friday and is expected to cut rates 100 bp to 14%. However, the market is split. Of the 26 analysts polled by Bloomberg, 10 see no change, 15 see a 100 bp cut, and one sees a 250 bp cut. This would be the second rate cut in the cycle, and comes as the ruble is at the strong end of recent trading ranges. The first cut came on January 30, when it cut 200 bp to 15%. With inflation running at 16.7% y/y in February, real rates are already negative and yet the ruble has firmed over the course of the past month.
Colombia reports January retail sales and IP Friday. The former is expected to rise 8.2% y/y, while the latter is expected to rise 1.4% y/y. The central bank next meets March 20, and Is expected to keep rates steady at 4.5%. The last move was a 25 bp hike back in August. While the economy has been softening, inflation has picked up. At 4.4% y/y in February, inflation moved above the 2-4% target range for the first time since May 2009. For now, we see steady rates until the inflation trajectory improves.
Emerging Markets: Preview of the Week Ahead
Reviewed by Marc Chandler
on
March 09, 2015
Rating:
Reviewed by Marc Chandler
on
March 09, 2015
Rating:
