EM Preview for the Week Ahead

EM FX came under great pressure last week despite the ECB’s dovish hold. Markets instead focused on the grim eurozone economic outlook, which comes within the context of a broader global slowdown. It’s clear that EM needs more than just the liquidity story, though that may be tested too with the spate of US data releases (retail sales, CPI, and PPI) out this week. We remain negative on EM.

Czech Republic reports February CPI Monday, which is expected to rise 2.6% y/y vs. 2.5% in January. Retail sales will be reported Thursday, which are expected to rise 0.9% y/y vs. 0.1% in December. Construction and industrial output will be reported Friday. With the economy slowing, the central bank is likely to keep rates on hold for the time being. Next policy meeting is March 28, no change is expected then.

Turkey reports Q4 GDP and January current account data Monday. GDP is expected to contract -2.5% y/y vs +1.6% in Q3. February IP will be reported Thursday, which is expected to contract -8.0% y/y vs. -9.8% in December. The economy is in recession, but high inflation and the weak lira is preventing the central bank from cutting rates anytime soon. Next policy meeting is April 25, no change is expected then.

Hungary reports January trade Monday. Central bank minutes will be released Wednesday. Inflation has crept higher to 3.1% y/y in February, the highest since November but still within the 2-4% target range. The bank has signaled it is in no hurry to remove stimulus. Next policy meeting is March 26, no change is expected then.

India reports February CPI and January IP Tuesday. CPI is expected to rise 2.4% y/y while IP is expected to rise 2.0% y/y. WPI will be reported Thursday and is expected to remain steady at 2.8% y/y. Price pressures remain low, which should allow the RBI to continue cutting rates ahead of the elections. Next policy meeting is April 4, and another 25 bp then seems likely.

Brazil reports February IPCA inflation Tuesday, which is expected to rise 3.84% y/y vs. 3.78% in January. It reports January IP Wednesday, which is expected to contract -1.6% y/y vs. -3.6% in December. Retail sales will be reported Thursday, which are expected to rise 0.7% y/y vs. 0.6% in December. Low inflation has pushed out tightening expectations into 2020. Next COPOM meeting is March 20, no change is expected then.

Mexico reports January IP Wednesday which is expected to contract -2.0% y/y vs. -2.5% in December. Inflation has fallen back within the 2-4% target range, but the vulnerable peso is likely to prevent the central bank from cutting rates anytime soon. Next policy meeting is March 28, no change is expected then.

China reports February IP and retail sales Thursday. The former is expected to rise 5.5% y/y and the latter by 8.1% y/y. Both would be slower readings. The data so far for February has been mixed but we believe the economy faces strong headwinds. More stimulus measures are likely this year.

South Africa reports February manufacturing production Thursday, which is expected to rise 1.2% y/y vs. 0.1% in December. The economy remains sluggish. While price pressures have fallen, the recently announced increases in electricity prices will boost inflation in the coming months. Next policy meeting is March 28, no change is expected then.

Argentina reports February CPI Thursday, which is expected to rise 50.5% y/y vs. 49.3% in January. The central bank finally tightened policy aggressively last week, driving the LELIQ rate up to nearly 58%, the highest since January. More needs to be done given recent peso weakness.

Poland reports February CPI Friday, which is expected to rise 1.2% y/y vs. 0.95 in January. If so, this would remain below the 1.5-3.5% inflation target. This should allow the central bank to keep rates on hold into 2020. Next policy meeting is April 3, no change is expected then.