EM Preview for the Week Ahead

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.

China reports December retail sales and IP Monday, as well as Q4 GDP. Sales are expected to rise 8.1% y/y and IP by 5.3% y/y. GDP is expected to grow 6.4% y/y vs. 6.5% in Q3. Policymakers continue to add stimulus, both monetary and fiscal. That tells us that the economic outlook remains worrisome.

Korea reports trade data for the first 20 days of January Monday. This will be the first snapshot of regional activity in 2019 and could set the tone for the rest of EM. Q4 GDP will be reported Tuesday, which is expected to grow 2.3% y/y vs. 2.0% in Q3. Bank of Korea meets Thursday and is expected to keep rates steady at 1.75%. CPI rose 1.3% y/y in December, well below the 2% target. As such, the BOK won’t be in any hurry to hike rates again.

Taiwan reports December export orders Monday, which are expected to contract -3.5% y/y vs. -2.1% in November. December IP will be reported Wednesday, which are expected to contract -1.4% y/y vs. +2.1% in November. CPI posted a -0.05% y/y reading in December, the lowest since the last deflationary reading back in October 2017. The central bank does not have an explicit inflation target, but low price pressures should allow it to remain on hold through much of this year.

Poland reports December real retail sales Tuesday, which are expected to rise 7.0% y/y vs. 6.9% in November. The economy remains firm but there are growing vulnerabilities to the slowdown in Western Europe. As such, policymakers are likely to retain a dovish slant throughout this year. Next central bank policy meeting is February 6, no change is expected then.

Singapore reports December CPI Wednesday, which is expected to rise 0.4% y/y vs. 0.3% in November. December IP will be reported Friday, which is expected to rise 4.4% y/y vs. 7.6% in November. The economy remains vulnerable to the regional slowdown. While the MAS does not have an explicit inflation target, low price pressures should allow it to keep policy steady this year. Next semiannual policy meeting is in April, no change is expected then.

South Africa reports December CPI Wednesday, which is expected to rise 4.5% y/y vs. 5.2% in November. SARB just delivered a dovish hold last week. Its model now prices in only one 25 bp hike by end-2021 compared with three such hikes by end-2020 forecasted back in November. Next policy meeting is March 28. While SARB would like to keep rates steady then, much will depend on how the rand is trading.

Brazil reports mid-January IPCA inflation Wednesday, which is expected to rise 3.80% y/y vs. 3.86% in mid-December. If so, inflation would remain in the bottom half of the 2.75-5.75% target range. Next COPOM meeting is February 6, no change expected then. Indeed, the market has pushed out the timing of the first hike closer to Q4 now.

Malaysia reports December CPI Thursday, which is expected to remain steady at 0.2% y/y.  Bank Negara meets later that day and is expected to keep rates steady at 3.25%. The central bank does not have an explicit inflation target. However, low price pressures should allow it to remain on hold through much of this year.

Mexico reports mid-January CPI Thursday, which is expected to rise 4.69% y/y vs. 5.0% in mid-December. If so, inflation would move closer to the 2-4% target range. Next policy meeting is February 7, no change is expected then. Going forward, the monetary policy outlook will likely be driven by the peso. For now, recent firmness gives Banxico some breathing room.