Emerging Markets: Preview of the Week Ahead

(from my colleague Dr. Win Thin)

EM ended the week on a mixed note after posting strong post-FOMC gains. The bounce in risk seems likely to continue this week, with little on the horizon to derail it. Specific country risk remains in play, however, with heightened political concerns in Brazil and South Africa.

Taiwan reports February export orders Monday, which are expected at -10% y/y vs. -12.4% in January. It reports February IP Wednesday, which is expected at -5.45% y/y vs. -5.65% in January. The central bank then meets Thursday and is expected to cut rates 12.5 bp to 1.5%. Deflation risks persist, while the real economy is in recession.

Hungarian central bank meets Tuesday and is expected to keep rates steady at 1.35%. CPI rose only 0.3% y/y in February, well below the 2-4% target range. Deflation risks persist, even though the real economy remains fairly robust. Some bank officials have started to talk about policy rate cuts

Singapore reports February CPI Wednesday, which is expected at -0.7% y/y vs. -0.6% in January. It then reports February IP Thursday. Deflation risks persist, while the economy remains sluggish. We expect the MAS to loosen policy at its April meeting by adjusting its S$NEER trading band.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. CPI fell -0.5% y/y in February, well below the 1-4% target range. Deflation risks persist, and yet the central bank has remained on hold due to inflation risks from El Nino. If the economy softens this year, the central bank has leeway to tilt more dovish as needed.

Philippines central bank meets Wednesday and is expected to keep rates steady at 4%. CPI rose 0.9% y/y in February, below the 1-3% target range. However, inflation risks from El Nino have kept the bank on hold. If the economy softens this year, the central bank has leeway to tilt more dovish as needed.

South Africa reports February CPI Wednesday, which is expected to rise 6.8% y/y vs. 6.2% in January. This is further above the 3-6% target range and the highest since July 2009. SARB just hiked 25 bp last week to 7%, and said it sees inflation peaking in Q4 of this year. We think tightening will continue at the next policy meeting May 19.

Brazil reports mid-March IPCA inflation Wednesday, which is expected to rise 10.06% y/y vs. 10.84% in mid-February. Much of the recent improvement in the y/y rate is due to base effects. There was a really high base in Q1 2015, so the y/y rates are going to ease a bit in Q1 2016. These base effects go away in Q2 and Q3, and so the improvement in IPCA may be temporary as IGP-M and PPI wholesale inflation measures are still accelerating. Brazil reports current account and FDI data that same day.

Mexico reports mid-March CPI Wednesday, which is expected to rise 2.83% y/y vs. 2.94% in mid-February. In Mexico’s case, the base effect has been low in January and February and so the y/y rate has been elevated in Q1. March provides a high base, and so the y/y rate should fall a bit before picking up again in April and May (low base). The central bank kept rates at 3.75% last week, as expected. For now, the firmer peso should alleviate some of the bank’s concerns about inflation pass-through.

Turkish central bank meets Thursday and is expected to keep rates steady at 7.5%. CPI rose 8.8% y/y in February, still above the 3-7% target range but falling. Government official hinted that the rates corridor could be adjusted with a cut to the overnight lending rate.

Malaysia reports February CPI Friday, and is expected to rise 4.2% y/y vs. 3.5% y/y in January. The central bank does not have a formal inflation target, but this is clearly moving into worrisome territory. Still, we do not think the bank will tighten, as the economy remains sluggish.

Disclaimer