- India Prime Minister Modi is boosting fiscal stimulus ahead of general elections due by May
- Indian officials appear to be withholding economic data that is harmful to the government
- Pakistan central bank unexpectedly hiked rates
- Russia central bank may be tilting dovish
- Argentina central bank will increase its USD purchases when the peso trades below the target range
- Fitch downgraded PEMEX two notches to BBB- with a negative outlook
EM FX ended last week on a firm note, fueled by news that the US shutdown was ending (at least temporarily). This week brings some potential for more positive headlines regarding Brexit, US-China trade talks, and Fed policy. Yet all three could pose negative risks too. We believe the US rates markets still need to normalize before the dollar can get significant traction.
- Priyanka Gandhi Vadra was appointed to a senior position by India’s opposition Congress Party
- Thailand announced general elections will be held March 24
- Russia central bank will resume its FX purchases
- Argentina central bank may tweak its FX policy
- Brazil Economy Minister Paulo Guedes laid out targets for privatizing state assets
- Political uncertainty remains high in Venezuela
EM FX ended the week on a soft note, as the dollar remains resilient. While a softer US interest rate outlook benefits EM, we think this is offset by the deteriorating global growth outlook. The IMF will release its updated World Economic Outlook Monday, which is likely to highlight the growing downside risks.
- Press reports that suggest that the US may lift its tariffs on China
- Turkish President Erdogan was granted emergency powers by parliament
- South African Reserve Bank delivered a dovish hold
- Violence has returned to Colombia
The South African Reserve Bank meets tomorrow and is widely expected to keep rates steady at 6.75%. The recent release of the ANC’s election manifesto suggests a modification of the central bank’s mandate, which we think would be a mistake. Longer-term, we see more downgrades and loss of investment grade from Moody’s.
Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. If the rupiah remains relatively firm, then BI is likely to remain on hold for the time being. Elections in April are unlikely to have much impact as Jokowi is widely expected to win a second term.
EM FX ended the week on a soft note after rallying most of the week on the dovish shift in the Fed’s messaging. Until US rates adjust back to pricing in no US recession, it will be hard for the dollar to maintain much traction and so this EM bounce can continue. Yet other risks to EM remain in place, including slower growth in China and globally.
- US-China relations appear to be thawing
- People’s Bank of China cut reserve requirements by one percentage point
- Bank of Thailand discussed lowering its inflation target
- Turkish tanks have reportedly been deployed on the Syrian border.
- Mexico Finance Ministry confirmed that it spent about $1.23 bln to hedge its 2019 oil revenues