EM Preview for the Week Ahead

EM FX ended the week on a soft note as the dollar remains resilient. Very weak EM PMI readings so far in January are very concerning and underscore why we remain negative on EM despite the Fed capitulating to the market and tilting more dovish. Firmer currencies should allow EM central banks that meet this week to keep rates steady.

Turkey reports January CPI Monday, which is expected to remain steady at 20.3% y/y. The central bank released its quarterly inflation report last week and signaled steady rates until inflation has come down significantly. Next policy meeting is March 6. While a lot can happen between now and then, we see steady rates next month.

Chile reports December retail sales Monday, which are expected to rise 3.0% y/y vs. -0.8% in November. January trade will be reported Thursday, followed by CPI Friday. Inflation is expected to ease to 2.2% y/y, which would be the lowest since May. Next policy meeting is March 31 and no move is seen then since the bank just hiked 25 bp last week.

Philippines reports January CPI Tuesday, which is expected to rise 4.4% y/y vs. 5.1% in December. If so, it would be the lowest since last March but still above the 2-4% target range. The central bank then meets Thursday and is expected to keep rates steady at 4.75%.

Czech Republic reports December retail sales Tuesday, which are expected to rise 0.8% y/y vs. 3.3% in November. It then reports construction and industrial output (flat y/y expected) and trade Wednesday. Czech National Bank meets Thursday and is expected to keep rates steady at 1.75%. CPI rose 2.0% in December, right on target. With headwinds growing, we see steady rates for now.

Hungary reports December retail sales Tuesday, which are expected to rise 5.1% y/y vs. a revised 4.9% (was 5.2%) in November. It then reports IP Thursday, which is expected to rise 3.0% y/y vs. 3.5% in December. December trade will be reported Friday. CPI rose 2.7% in December, the lowest since April and in the bottom half of the 2-4% target range.

Colombia reports January CPI Tuesday, which is expected to rise 3.26% y/y vs. 3.18% in December. If so, inflation would remain well within the 2-4% target range. Central bank minutes will be released Thursday. Next policy meeting is March 29, no change is expected then. Market sees the first rate hike in Q2.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.75%. CPI rose 0.3% in January, well below the 1-4% target range. While it started the tightening cycle in December with a 25 bp hike, the pace will be very cautious. Market sees no hike until H2.

Indonesia reports Q4 GDP mid-week, with growth expected at 5.12% y/y vs. 5.17% in Q4. Q4 current account data will be reported near the end of the week. CPI rose 2.8% y/y in January, the lowest since August 2016 and nearing the bottom of the 2.5-4.5% target range.

National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. CPI rose 1.2% in December, the lowest since December 2016 and below the 1.5-3.5% target range. As such, there is a chance that the bank extends its dovish forward guidance of no rate hikes this year into next year.

Brazil COPOM meets Wednesday and is expected to keep rates steady at 6.5%. Brazil reports January IPCA consumer inflation Friday, which is expected to rise 3.83% y/y vs. 3.75% in December. If so, inflation would be in the bottom half of the 2.75-5.75% target range. Market sees no hike until year-end.

Reserve Bank of India meets Thursday and is expected to keep rates steady. CPI rose 2.2% in December, the lowest since June 2017 and near the bottom of the 2-6% target range. Ahead of general elections in May, the RBI will be under pressure not to hike rates.

Mexico reports January CPI Thursday, which is expected to rise 4.50% y/y vs. 4.83% in December. If so, it would be the lowest since last May but still above the 2-4% target range. Banco de Mexico meets later that day and is expected to keep rates steady at 8.25%. Going forward, monetary policy will be driven in large part by the peso.

Peru central bank meets Thursday and is expected to keep rates steady at 2.75%. Inflation was 2.1% y/y in January, well within the 1-3% target range. Market sees the first hike in Q1, but we think the March 7 meeting is more likely.

Russia reports January CPI late in the week, which is expected to rise 5.1% y/y vs. 4.3% in December. If so, it would be the highest since December 2016 and further above the 4% target. Central Bank of Russia meets Friday and is expected to keep rates steady at 7.75%. However, we see some chance of a hawkish surprise.