We think that it’s still too early to say whether Friday’s price action was simply profit-taking ahead of the weekend, or the resumption of overall negative market sentiment. We think the global backdrop remains conducive for risk, at least near-term. China concerns are on the back burner, while markets are still skeptical about the prospects for Fed tightening. Commodity prices are the potential spoilers to a resume risk rally, as oil ended last week on a sour note.
Country-specific risk remains alive and well, however. Turkey in particular may be in focus, with markets likely to react badly to lack of central bank tightening this week. Add in heightened political risk after the Ankara bombing. Brazil offers the usual smorgasbord of horrible fundamentals and political risk, with inflation and fiscal data this week likely to remind markets of ongoing downgrade risk. China might be a non-factor this week, with no data reports on the horizon. As long as China’s FX and equity markets behave, global market sentiment should hold up.
Israeli central bank meets Monday and is expected to keep policy steady. Deflation is persistent, but the bank so far has been reluctant to take unconventional measures. At -0.6% y/y in January, CPI inflation is running well below the 1-3% target range. Some analysts are starting to predict negative rates this year (at 0.10% since February 2015), but we think the central bank would first step up its FX intervention.
Mexico reports December INEGI retail sales Monday, which are expected to rise 6.1% y/y vs. 5.7% in November. It then reports mid-February CPI Wednesday, which is expected to rise 2.86% y/y vs. 2.48% in mid-January. Q4 current account data will be reported Thursday. Mexico reports January trade Friday. The external accounts are in decent shape, but the recent fall-off in non-petroleum exports is worrisome and bears watching.
Singapore reports January CPI Tuesday, which is expected at -0.4% y/y vs. -0.6% in December. It then reports January IP Friday, which is expected at -4.8% y/y vs. -7.9% in December. Continued softness in the data has led us to look for MAS easing policy at its April meeting by adjusting its S$NEER trading band.
Turkish central bank meets Tuesday and is expected to keep policy steady. We do not think markets would take this well, not with CPI inflation at 9.6% y/y in January and rising further above the 3-7% target range. Yet we know the central bank is under great pressure not to tighten further. Political risk has risen with the recent bombing in Ankara last week. Also, relations with the US may be getting strained, with senior Turkish official saying that US jets may be barred from using Incirlik airbase.
Brazil reports mid-February IPCA inflation and January current account data Tuesday. IPCA is expected to rise 10.72% y/y vs. 10.74% in mid-January, while the current account is expected at -$5.9 bln. Brazil then reports February IGP-M wholesale inflation and consolidated budget data Friday. IGP-M is expected to rise 11.99% y/y vs. 10.95% in January. Data are likely to support the notion that more downgrades are likely. With inflation and inflation expectations still rising, central bank officials last week pushed back against the notion of rate cuts.
Hungarian central bank meets Tuesday and is expected to keep policy steady. The economy remains robust, but central bank officials have highlighted the risk of further easing in March/April if deflation risks persist. CPI rose 0.9% y/y, lower than expected and well below the 2-4% target range.
Malaysia reports January CPI Wednesday, and is expected at 3.8% y/y vs. 2.7% in December. The spike is due mainly to low base effects which should wear off in the coming months, this will keep the central bank cautious. It has kept rates steady since the last 25 bp hike to 3.25% back in July 2014, the weakening economy should put a more dovish tilt on policy as the year progresses and inflation starts to ease again. Bank Negara does not have a formal inflation target.
Taiwan reports January export orders Wednesday, which are expected at -10.5% y/y vs. -12.3% in December. It then reports January IP Friday, which is expected at -5.9% y/y vs. -6.2% in December. Continued softness in the data should keep the central bank’s easing cycle alive for most of 2016. We see a 25 bp cut at the next quarterly policy meeting in late March.
Hong Kong reports Q4 GDP Wednesday, and growth is expected at 2.0% y/y vbs. 2.3% in Q3. Hong Kong is suffering from slow mainland growth. January trade data will be reported Thursday, with exports expected at -3.5% y/y and imports at -5.8% y/y.
Korea reports February consumer confidence Thursday. We think the Bank of Korea is setting the table for easing policy in Q2. However, it is concerned about excessive won weakness and did some jawboning last week as USD/KRW made a new high for the cycle near 1240.
South Africa reports January PPI and Q4 unemployment Thursday. PPI is expected to rise 6.3% y/y vs. 4.8% in December. However, we think there are upside risks after January CPI inflation came in higher than expected at 6.2% y/y, above the 3-6% target range. The SARB next meets March 17, and we think a rate hike will be seen then. The only question to us is whether it’s 25 bp or 50 bp. Unemployment is expected to rise slightly to 25.6%, which makes things tougher for South African policymakers.
Win Thin is a senior currency strategist with over fifteen years of investment experience. He has a broad international background with a special interest in developing markets. Prior to joining BBH in June 2007, he founded Mandalay Advisors, an independent research firm that provided sovereign emerging market analysis to institutional investors. He received an MA from Georgetown University in 1985 and a B.A. from Brandeis University 1983. Feel free to contact the Zurich office of BBH
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