Emerging Market Preview of the Week Ahead

(from my colleague Dr. Win Thin)

EM FX ended last week on a firm note.  Falling US rates allowed many foreign currencies to gain some traction.  This week, a heavy US data slate is likely to test the market’s convictions on the Fed, with January PPI, CPI, IP, and retail sales all being reported.  Yellen also testifies before Congress on Tuesday and Wednesday.    

India reports January CPI Monday, which is expected to rise 3.24% y/y vs. 3.41% in December.  It then reports January WPI Tuesday, which is expected to rise 4.35% y/y vs. 3.39% in December.  The RBI left rates steady last week and moved to a neutral stance.  Price pressures are likely to pick up this year, as the acceleration in WPI inflation suggests.

Poland reports January CPI Monday, which is expected to rise 1.7% y/y vs. 0.8% in December.  If so, this would be the highest since January 2013 and back within the 1.5-3.5% target range.  It then reports Q4 GDP Tuesday, with growth expected to remain steady at 2.5% y/y.  January industrial and construction output, retail sales, and PPI will be reported Friday.  The central bank will find it hard to wait until 2018 to start tightening.

Mexico reports January ANTAD retail sales Monday.  Despite tighter monetary policy and rising inflation, retail sales have remained fairly robust, rising 5.3% y/y in December.  With another 50 bp hike last week, we think it unlikely that consumption can remain firm in 2017.  The next policy meeting is March 30 and it’s too early to say what’s likely to happen then.  

China reports January CPI Tuesday, which is expected to rise 2.4% y/y vs. 2.1% in December.  Price pressures are likely to keep rising, as PPI (6.6% y/y rise expected) points to significant pipeline price pressures.  Money and loan data may be reported this week, but no date has been scheduled.  Another big jump in new loans is expected.

Turkey reports December current account data Tuesday, which is expected at -$4.5 bln.  If so, the 12-month total would fall slightly to -$30.1 bln.  With oil and energy prices rising, we expect the external accounts to worsen this year.  Taken in conjunction with rising inflation, the fundamentals will remain poor.

Hungary reports January CPI Tuesday, which is expected to rise 2.2% y/y vs. 1.8% in December.  If so, it would be the highest since March 2013 and back within the 2-4% target range.  It also reports Q4 GDPTuesday, which is expected to grow 2.0% y/y vs. 2.2% in Q3.   Growth remains sluggish, but we think it will be hard for the central bank to ease further if inflation continues to rise.  Next policy meeting is February 28, no change expected then.

Czech reports Q4 GDP Tuesday, which is expected to grow 2.3% y/y vs. 1.9% in Q3.  The economy is growing solidly, even as price pressures are rising.  January CPI rose 2.2% y/y, the highest since and above the 2.0% target.  Next central bank meeting is March 30.  We believe it will maintain its forward guidance then for ending the koruna cap around mid-year.  That would suggest no change at the May 4 meeting and then ending it at the June 29 meeting.

Brazil reports December retail sales Tuesday, which are expected to contract -4.7% y/y vs. -3.5% in November.  It then reports December GDP proxy Thursday and then December current account data Friday.  Economic activity remains weak, but external vulnerabilities are very low.  We expect another 75 bp cut at the next COPOM meeting February 22.

Chile central bank meets Tuesday and is expected to keep rates steady at 3.25%.  Because CPI inflation accelerated to 2.8% y/y in January, we lean toward no cut.  It will be a close call and analysts polled by Bloomberg are almost evenly split.  If the bank doesn’t cut this week, then it will likely do so at the next policy meeting March 16.

Singapore reports December retail sales Wednesday, which are expected to rise 1.5% y/y vs. 1.1% in November.  It then reports January trade Friday, with NODX expected to rise 9.8% y/y vs. 9.4% in December.  The economy is performing solidly even as price pressures are rising.  We think the MAS will keep policy steady at its semi-annual policy meeting in April.

South Africa reports January CPI Wednesday, which is expected to rise 6.7% y/y vs. 6.8% in December.  It also reports December retail sales that day, which are expected to rise 2.0% y/y vs. 3.8% in November.  Price pressures remain elevated, but the sluggish economy is likely to keep the SARB on hold for now.  Next policy meeting is March 30, no change in rates expected.

Israel reports January CPI Wednesday, which is expected to rise 0.1% y/y vs. -0.2% in December.  If so, it would be the first positive reading since July 2014.  It then reports Q4 GDP Thursday, where growth is seen accelerating to 3.7% SAAR from 3.6% in Q3.  With the economy robust and inflation rising, we do not see any further unconventional easing by the central bank.  Next policy meeting is February 27, no change is expected then.

Bank Indonesia meets Thursday and is expected to keep rates steady at 4.75%.  January CPI rose 3.49% y/y, up from 3.02% in December.  This is still near the bottom of the 3-5% target range, but with price pressures accelerating across the region, we think Bank Indonesia has ended its easing cycle.

Colombia reports December retail sales and IP Friday.  The former is expected to rise 6.3% y/y and the latter by 1.6% y/y.  The economy is sluggish for the most part, but the central bank refrained from cutting rates again at its January meeting.  Next policy meeting is February 24, and another 25 bp cut then to 7.25% seems likely.    

Disclaimer