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.
Brazil reports December current account and FDI data Monday. It reports central government budget data Wednesday, followed by consolidated budget data Thursday. December IP will be reported Friday, which is expected to contract -3.8% y/y vs. -0.9% in November. We believe Guedes is being too optimistic with regards to balancing the budget. The closest it ever got was -1.3% of GDP back in October 2008
Thailand reports December manufacturing production Tuesday, which is expected to rise 0.3% y/y vs. 1% in November. It reports December trade Thursday and January CPI Friday, which is expected to rise 0.30% y/y vs. 0.36% in December. If so, it would remain well below the 1-4% target range. Bank of Thailand just started the tightening cycle in December but it’s clear that the pace will be very modest. Next policy meeting is February 6, no change is expected then.
National Bank of Hungary meets Tuesday and is expected to keep policy steady. CPI rose 2.7% y/y in December, back into the bottom half of the 24% target range after spending six months in the top half. This should allow the central bank to keep policy ultra-loose for the time being.
South Africa reports December budget, money, and loan data Wednesday. Trade data will be reported Thursday. The economy remains soft and low inflation and a firm rand should allow SARB to keep rates steady for the time being given its dovish hold earlier this month. Next policy meeting is March 28. While a lot can happen between now and then, we see no change in rates.
Turkey central bank releases its quarterly inflation report Wednesday. This should provide some clues on monetary policy ahead of the March 6 policy meeting. Markets see a risk that the bank starts an easing cycle then, which would not be taken well. December trade will be reported Thursday.
Mexico reports Q4 GDP Wednesday, which is expected to grow 2.0% y/y vs. 2.5% in Q3. The economy remains sluggish, but Banco de Mexico cannot cut rates while the peso remains vulnerable and inflation remains above target at 4.8% y/y. Next policy meeting is February 7, no change is expected then.
Chile central bank meets Wednesday and is expected to hike rates 25 bp to 3.0%. CPI rose 2.6% y/y in December, which is in the bottom half of the 2-4% target range. It just started the tightening cycle in October and markets see one hike every quarter this year. We think this is too aggressive a pace. Chile reports December IP Thursday, which is expected to rise 1.0% y/y vs. 0.4% in November.
Korea reports December IP Thursday, which is expected to rise 0.9% y/y vs. 0.1% in November. It reports January CPI and trade data Friday. Inflation is expected at 1.4% y/y, while exports are expected to contract -8% y/y and imports by -6.8% y/y. Bank of Korea hiked rates in November but with inflation well below the 2% target, it is in no hurry to hike again. Next policy meeting is February 28, no change is expected then.
China reports official January PMI Thursday. Manufacturing PMI is expected to fall a tick to 49.3, while non-manufacturing is expected to rise a tick to 53.9. Caixin PMI will be reported Friday, which is expected to remain steady at 49.7. Despite stimulus measures already taken, we believe there are still downside risks to the economy until the trade war with the US has been resolved.
Colombia central bank meets Thursday and is expected to keep rates steady at 4.25%. CPI rose 3.2% y/y in December, well within the 2-4% target range. The bank has not moved since the last 25 bp cut last April. Markets see the first 25 bp hike in Q2, followed by one each in Q3 and Q4. This strikes us as too aggressive, but much will depend on global factors this year.