EM Preview for the Week Ahead

EM FX came under some pressure last week as the dollar found some traction. Rising virus numbers globally may keep markets on edge this week. However, event risk from Brexit has faded and so the safe haven bid for the greenback should fade. Indeed, we believe the underlying fundamentals continue to support our weak dollar call. The uncertainty over the US spending bills and the expiration of emergency unemployment benefits are likely to be a headwind on the US as we move into 2021.


Brazil reports central government budget data Tuesday. A primary deficit of -BRL25.2 bln is expected. Consolidated budget data will be reported Wednesday and a primary deficit of -BRL26.3 bln is expected. The fiscal outlook is the biggest unknown right now for Brazil. Recent improvements have led the market to take back its rate hike expectations, with low odds seen now for a hike January 20 and odds about 50-50 for a hike March 17. Of note, the central bank last week eased emergency capital requirements for local banks that will release about BRL65 bln, though leaving another BRL80 bln still tied up.

Chile reports November retail sales, unemployment, and IP Thursday. Sales are expected to rise 15.0% y/y vs. 19.6% in October, while unemployment is expected to fall to 10.9% from 11.6% in October. Central bank minutes released last week were downbeat. It noted that recent virus restrictions in Santiago may curb the economy’s momentum, adding that its credit facility for banks “not being used with the expected intensity” and so the terms may be adjusted. For now, the bank is on hold with fiscal policy likely to carry the load into 2021. Next policy meeting is January 27.



South Africa reports November trade data Monday. Budget data will be reported Wednesday. M3 and private sector credit growth will be reported Thursday. While the economy is recovering, the outlook has worsened with this most recent record-high outbreak of what appears to be a new COVID strain. New restrictions are likely in the coming days. We expect policymakers to add more stimulus to aid the economy. Next policy meeting is January 21 and we think a cut then is likely.

Turkey reports November trade data Thursday. A deficit of -$5.1 bln is expected vs. -$2.37 bln in October. If so, the 12-month total would rise to -$49.8 bln, the largest deficit since December 2018. Financing needs for the nation’s external deficit are rising, but higher rates should help attract foreign capital. The central bank just delivered a larger than expected 200 bp hike that takes the policy rate up to 17.0%. This was a good signal to send to the markets. That said, inflation pressures are rising and so further tightening is likely. Next policy meeting is January 21.

Russia reports December CPI Thursday. Headline inflation is expected at 4.8% y/y vs. 4.4% in November. If so, it would be the highest since May 2019 and would move further above the 4% target. The central bank left rates unchanged at 4.25% this month. While it left the door open for further easing, it warned that rising price pressures leave it little room to resume cutting rates. The bank raised its forecast for year-end inflation to 4.6-4.9% vs. 3.9-4.2% from October. The forecast for end-2021 was kept at 3.5-4.0%. Next policy meeting is February 12.



Hong Kong reports November trade data Monday. Exports are expected to rise 1.8% y/y vs. -1.1% in October while imports are expected to rise 0.9% y/y vs. 0.6% in October. Hong Kong exports have lagged that of the mainland’s, which rose 11.4% y/y in October and 21.1% y/y in November. This reflects the ongoing growth of other southern ports but for now, Hong Kong continues to maintain the lion’s share of financial services that are linked to the mainland.

Korea reports November IP Wednesday. It is expected to fall -0.6% y/y vs. -2.2% in October. December CPI will be reported Thursday, with headline inflation expected to fall a tick to 0.5% y/y. December trade data will be reported Friday, with exports expected to rise 5.4% y/y vs. 4.1% in November while imports are expected to fall -2.6% y/y vs. -1.9% in November. This will be the first snapshot of trade data for December and is typically a good bellwether for the rest of the region.

China reports official December PMI readings Thursday. Manufacturing is expected to fall a tick to 52.0, while non-manufacturing is seen steady at 56.4. Caixin readings will be reported next week. These are the first snapshots of the mainland economy for December and all indications are that the recovery is maintaining momentum as it heads into 2021. Meanwhile, all eyes are on Ant after reports emerged that regulators ordered the online financial group to “rectify” its lending, insurance, and wealth management services and return to its roots as a provider of payments services.