Since their post-FOMC peak on January 31, both MSCI EM and MSCI EM FX have fallen. Virtually every EM currency has given up their post-FOMC gains, the lone exception being MYR (+0.2%). The worst performers have been ZAR (-6%), ARS (-3.3%), and TRY (-2.3%). This supports our belief that the liquidity and low US rates story is not enough to sustain the EM rally on its own. What’s still missing is an improved global outlook and we certainly didn’t get that with the US retail sales data.
Singapore reports January trade Monday. NODX are expected to contract -2.7% y/y vs. -8.5% in December. Data have been coming in weak recently, while inflation remains low at 0.5% y/y in December. The MAS does not have an explicit inflation target, but low price pressures should allow it to keep policy on hold at its semi-annual policy meeting in April. The government will also release its budget statement Monday. We suspect some fiscal stimulus will be included.
Thailand reports Q4 GDP Monday, which is expected to grow 3.6% y/y vs. 3.3% in Q3. The economy has held up well despite ongoing political uncertainty. The Bank of Thailand started a tightening cycle but signaled a cautious pace ahead as inflation remains low at 0.3% y/y. Next policy meeting is March 20, no change is expected then.
South Africa reports January CPI Wednesday, which is expected to rise 4.3% y/y vs. 4.5% in December. If so, this would put inflation below the 4.5% target for the first time since May. Still, the vulnerable rand is likely to prevent the SARB from cutting rates anytime soon. Next policy meeting is March 28 and no change is expected then. Finance Minister Mboweni will make his FY2019/20 budget statement Wednesday.
Poland reports January IP and PPI Wednesday, which are expected to rise 3.6% y/y and 2.1% y/y, respectively. It then reports construction output and real retail sales Thursday, which are expected to rise 8.0% y/y and 5.3% y/y, respectively. Central bank minutes will also be released Thursday. CPI rose only 0.9% y/y in January and so the bank will remain in dovish mode until further notice. Next policy meeting is March 6, no change is expected then.
Korea reports trade data for the first 20 days of February Thursday. Korea offers the earliest and arguably cleanest reads for regional trade and so this report will be closely watched. Headwinds to the economy are building and so we see very little in the way of tightening this year after the Bank of Korea first hiked in November. Next policy meeting is February 28, no change is expected then.
Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. CPI rose 2.8% y/y, the lowest since August 2016 and below the 3.5% target. If the rupiah remains relatively firm, we think Bank Indonesia may shift more dovish and perhaps contemplate a rate cut later this year. We know the government has made attempts to reflate the economy ahead of April elections.
Brazil reports mid-February IPCA inflation Thursday, which is expected to remain steady at 3.77% y/y. The new central bank leadership has suggested that further rate cuts will hinge on passage of fiscal reforms. Weak data has pushed out tightening expectations further. Indeed, the CDI market is now pricing in no hikes until early 2020. Next COPOM meeting is March 20, no change is expected then.
Banco de Mexico releases minutes Thursday. The bank delivered a dovish hold this month, suggesting the tightening cycle is over. Mexico reports mid-February CPI Friday, which is expected to rise 4.05% y/y vs. 4.52% in mid-January. If so, this would be the lowest since December 2016 and nearing the top of the 2-4% target range. Yet as long as the peso remains vulnerable, the notion of rate cuts is off the table. Next policy meeting is March 28, no change is expected then.
Malaysia reports January CPI Friday, which is expected to fall -0.4% y/y vs. +0.2% in December. While Bank Negara does not have an explicit inflation target, the lack of any price pressures whatsoever should allow it to remain on hold this year. Next policy meeting is March 5, no change is expected then.
Taiwan reports January export orders and Q4 current account data Friday. Orders are expected to contract -8.5% y/y vs. -10.5% in December. Downside risks to growth are building, while inflation is non-existent at 0.2% y/y. While the central bank does not have an explicit inflation target, this should allow it to keep policy on hold at its next quarterly policy meeting March 21.