EM Preview for the Week Ahead

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.

China reports December trade data Monday. Exports are expected to rise 2.0% y/y and imports by 4.5% y/y. Money and loan data will also be reported this week, but no date has been scheduled. Reports last week of additional fiscal and monetary stimulus support our view that the economy is still slowing.

India reports December WPI and CPI Monday. The former is expected to rise 4.58% y/y vs. 4.64% in November, while the latter is expected to rise 2.17% y/y vs. 2.33% in November. If so, inflation would be near the bottom of the 2-6% target range. Next policy meeting is February 6. While we think it is too early, some may look for a rate cut then.

Turkey reports November IP Monday, which is expected to contract -5.4% y/y vs. -5.7% in October. Central Bank of Turkey meets Wednesday and is expected to keep rates steady. A couple of analysts look for a cut, but we think it’s too early, especially with the lira back under pressure. CPI rose 20.3% y/y in December, down from the peak of 25.24% in October. The 3-7% target range has been rendered meaningless.

Poland reports November trade and current account data Monday. It then reports December industrial and construction output as well as PPI Friday. The CEE economies are at risk given the slowdown in Western Europe. As such, we believe National Bank of Poland will remain on hold into 2020. Next policy meeting is February 6, no change is expected then.

Hungary reports December CPI Tuesday, which is expected to rise 2.8% y/y vs. 3.1% in November. If so, inflation would be back below the 3% target but still within the 2-4% target range. For now, the central bank is maintaining its dovish stance. Next policy meeting is January 29, no change is expected then.

Brazil reports November retail sales Tuesday, which is expected to rise 2.2% y/y vs. 1.9% in October. The economy remains sluggish, while low inflation will allow the central bank to remain on hold for much of this year. Next COPOM meeting is February 6, no change is expected then.

Israel reports December CPI Tuesday, which is expected to rise 0.9% y/y vs. 1.2% in November. If so, inflation would be back below the 1-3% target range. For now, the central bank is likely to maintain a cautious tightening stance after starting the cycle back in November with a 15 bp hike to 0.25%. Next policy meeting is February 25, no change is expected then.

South Africa reports November retail sales Wednesday, which are expected to rise 2.0% y/y vs. 2.2% in October. South African Reserve Bank meets Thursday and is expected to keep rates steady at 6.75%. CPI rose 5.2% y/y in November, which is still within the 3-6% target range. If the rand remains relatively firm, then SARB is Likely to remain on hold for the time being.

Singapore reports December trade data Thursday. NODX are expected to rise 0.7% y/y vs. -2.6% in November. The regional slowdown is likely to weigh on Singapore’s economy this year. With inflation low, the MAS should be able to remain on hold at its next semiannual policy meeting in April.

Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. CPI rose 3.1% y/y in December, below the 3.5% target but still within the 2.5-4.5% target range. If the rupiah remains relatively firm, then BI is Likely to remain on hold for the time being.

Colombia reports November retail sales and IP Friday. The former is expected to rise 6.9% y/y while the latter is expected to rise 4.3% y/y. Higher oil prices, if sustained, would go a long way in supporting the economy this year. Next central bank meeting is January 31, no change is expected then. Markets expect the first rate hike in Q2, and we concur.