EM Preview for the Week Ahead

EM got hit hard last week by risk-off sentiment that picked up in the wake of the FOMC meeting. Like the recent ECB decision, markets are rightfully focusing on the global growth implications of the dovish central banks rather than the liquidity implications. The US yield curve briefly inverted last week. If sustained, it would signal a likely US recession in the next 6-24 months. This is hardly conducive to risk and EM assets, which we see remaining under pressure this week.

Thai elections were held Sunday. Results were delayed until Monday but a victory by the military-backed Phalang Pracharat seems a foregone conclusion. Markets will instead be focusing on the margin of victory, as well as on any signs that the deep divisions within the country have narrowed.

Singapore reports February CPI Monday, which is expected to rise 0.5% y/y vs. 0.4% in January. It then reports February IP Tuesday, which is expected to rise 0.2% y/y vs. -3.1% in January. While the MAS does not have an explicit inflation target, low price pressures and a weak economy will allow it to keep policy on hold at its next semiannual policy meeting next month.

Taiwan reports February IP Monday, which is expected to contract -1.5% y/y vs. -1.9% in January. The economy continues to suffer from the regional slowdown in trade and activity. The central bank just left rates steady at 1.375% last week. CPI rose only 0.2% y/y in February. While the bank does not have an explicit inflation target, low price pressures should allow it to keep rates on hold this years.

Brazil reports February current account data Monday. Mid-March IPCA inflation and COPOM minutes will be released Tuesday. Inflation is expected to pick up to 4.14% y/y from 3.73% in mid-February. If so, inflation would remain well within the 2.75-5.75% target range. The economy remains weaker than expected, which has led to increased speculation that the next move in rates will be down, not up. Central government budget data will be reported Thursday, followed by consolidated budget data Friday.

Argentina reports January supermarket sales Monday. February trade and Q4 current account data will be reported Tuesday, followed by January GDP proxy Thursday. Rising inflation and a weaker peso have forced the central bank to tighten policy again, which means the economy is unlikely to recover anytime soon.

National Bank of Hungary meets Tuesday and is expected to keep policy steady. CPI rose 3.1% y/y, in the top half of the 2-4% target range but still near the 3% target. However, the economy has shown some signs of slowing and so the bank is likely to remain on hold for the time being.

Mexico reports February trade Wednesday. Banco de Mexico meets Thursday and is expected to keep rates steady at 8.25%. CPI rose 3.9% y/y in February, back in the 2-4% target range for the first time since December 2016. However, it is too soon to contemplate a rate cut. Consensus sees the first cut in early 2020, but much will depend on external factors and the peso.

Czech National Bank meets Thursday and is expected to keep rates steady at 1.75%. CPI rose 2.7% y/y, near the top of the 1-3% target range. However, the economy has been softening of late and so the bank is likely to remain on hold for the time being.

South African Reserve Bank meets Thursday and is expected to keep rates steady at 6.75%. CPI rose 4.1% y/y in February. While still within the 3-6% target range, the recently announced hikes in electricity prices will push inflation higher in Q2 and beyond. February money and credit, budget, and trade data will be reported Friday.

Korea reports February IP Friday, which is expected to rise 0.4% y/y vs. 0.1% in January. The economy has been slowing even as price pressures remains low. CPI rose 0.5% y/y in February, well below the 2% target, and should allow BOK to keep rates on hold this year. Consensus sees the next hike in early 2020, but much will depend on external factors and the won.

Turkey reports February trade Friday, where a deficit of -$2.2 bln is expected. The economy is in recession, which has helped narrow the external deficits. Still, Turkey remains too reliant on hot money flows to finance those deficits. Erdogan isn’t helping matters by threatening to go after banks for making bearish predictions on the lira. Probes have already begun, including a major US bank.

Poland reports March CPI Friday, which is expected to rise 1.6% y/y vs. 1.2% in February. If so, inflation would just move back into the 1.5-3.5% target range. Still, the central bank is likely to keep rates steady this year. It’s too early to say anything about next year, but official comments suggest a willingness to cut rates if the economy slows too much.

Chile central bank meets Friday and is expected to keep rates steady at 3.0%. CPI rose 1.8% y/y in February, below the 2-4% target range. The economy slowed in Q1 but is expected to pick up in Q2 and beyond. Consensus sees the next hike near mid-year, but much will depend on external factors and the peso. Ahead of the decision, Chile reports February manufacturing production, which is expected to rise 2.2% y/y vs. 2.7% in January.

Over the weekend, China reports official March PMI readings. This will be the first snapshot of the mainland economy in March. Manufacturing PMI is expected at 49.6 vs. 49.2 in February, while non-manufacturing is expected at 54.5 vs. 54.3 in February. Note that the official PMI has been lower than the Caixin reading in recent months, but both have shown signs of stabilizing from recent stimulus measures.