EM Preview for the Week Ahead

EM FX ended the week mixed but gave up much of their post-FOMC gains as the week progressed. MYR, PHP, and MXN were the best EM performers for the week and posted small gains. ZAR, BRL, and ARS were the worst in EM, dropping nearly 2% against USD. US-China trade talks and Chinese data are likely to set the tone for EM this week. Reports that the US government may shut down again should weigh on risk assets.

China reports January money and loan data this week, but no date has been set. It then reports January trade on Thursday, with exports expected to contract -3.2% y/y and imports by -10.7% y/y. CPI and PPI will be reported Friday and are expected to rise 1.9% y/y and 0.3% y/y, respectively.

Malaysia reports December IP Monday, which is expected to rise 2.7% y/y vs. 2.5% in November. It reports Q4 GDP Thursday, which is expected to grow 4.7% y/y vs. 4.4% in Q3. Rising headwinds and low price pressures should allow Bank Negara to keep rates steady this year. Next policy meeting is March 5, and no change is expected then.

Mexico reports December IP Monday, which is expected to contract -1.6% y/y vs. -1.3% in November.   Banco de Mexico just delivered a dovish hold, whilst January CPI inflation eased to 4.37% y/y. We think the tightening cycle has ended, but much will depend on global factors. Next policy meeting is March 28, and no change is expected then.

Taiwan reports January CPI Tuesday, which is expected to rise 0.33% y/y vs. -0.05% in December. January trade will be reported Friday, with exports expected to contract -3.2% y/y and imports by -4.5% y/y. Sluggish growth and low price pressures should allow the central bank to remain on hold for much of this year. Next quarterly policy meeting is March 21, and no change is expected then.

Hungary reports January CPI Tuesday, which is expected to rise 2.8% y/y vs. 2.7% in December. If so, inflation would remain below the 3% target but within the 2-4% target range. Central bank minutes will be released Wednesday. Q4 GDP will be reported Thursday, which is expected to grow 4.6% y/y vs. 4.9% in Q3. Slowing growth and low price pressures should allow the central bank to keep rates steady into 2020. Next policy meeting is February 26, and no change is expected then.

South Africa reports Q4 unemployment and December manufacturing production Tuesday. It then reports December retail sales Wednesday, which are expected to rise 2.5% y/y vs. 3.1% in November. Sluggish growth and low price pressures should allow SARB to keep rates steady for much of this year, but much will depend on global factors. Next policy meeting is March 28, and no change is expected then.

India reports January CPI and December IP Tuesday. January WPI will be reported Thursday. While price pressures are falling, we disagreed with last week’s surprise rate cut since it came too close to May elections. Next policy meeting is April 4, and no change is expected then. However, another dovish surprise is possible.

Czech Republic reports January CPI Wednesday, which is expected to rise 2.1% y/y vs.2.0% in December. Q4 GDP will be reported Friday, with growth expected to remain steady at 2.4% y/y. Czech National Bank just kept rates steady last week as concerns about slowing growth mount. Next policy meeting is March 28 and we see steady rates then too.

Israel reports January trade Wednesday. January CPI will be reported Friday and is expected to rise 0.9% y/y vs. 0.8% in December. If so, inflation would be below the bottom of the 1-3% target range. Sluggish growth and low price pressures should allow the central bank to maintain a modest pace of tightening after it started the cycle with a 15 bp hike in November. Next policy meeting is February 25, no change is expected then.

Brazil reports December retail sales Wednesday, which are expected to rise 4.0% y/y vs. 4.4% in November. IPCA inflation came in slightly lower than expected at 3.78% y/y in January, whilst COPOM signaled steady rates for the time being. CDI market sees steady rates until Q4. Next policy meeting is March 20, and no change is expected then.

Poland reports December trade and current account data Wednesday. Q4 GDP will be reported Thursday, which is expected to grow 4.8% y/y vs. 5.1% in Q3. January CPI will be reported Friday, which is expected to rise 1.0% y/y vs. 1.1% in December. If so, inflation would remain below the 1.5-3.5% target range. Slowing growth and low price pressures should allow the central bank to keep rates steady well into 2020.

Turkey reports December current account and IP Thursday. IP is expected to contract -7.5% y/y vs. -6.5% in November. The economy is likely to fall into recession, but high inflation and a vulnerable lira are likely to keep the central bank on hold for now. Next policy meeting is March 6, and no change is expected then.

Colombia reports December retail sales, trade, and IP Thursday. The data are expected to slow from November. The economy outlook is solid, aided by higher oil prices. While a tightening cycle is likely to start this year, we feel the central bank will hold off until the global outlook becomes clearer. Next policy meeting is March 29, and no change is expected then.