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EM Preview for the Week Ahead

Market sentiment on EM remains positive after the Phase One trade deal was signed. Data out of China is also supportive for EM. Key forward-looking data this week are Taiwan export orders and Korea trade data for the first 20 days of January. The global liquidity story also remains beneficial for risk, with the ECB, Norges Bank, BOC, and BOJ all set to maintain steady rates this week.

AMERICAS

Mexico reports mid-January CPI Thursday, which is expected to rise 3.16% y/y vs. 2.63% in mid-December. If so, this would be the highest reading since August and back above the 3% target though within the 2-4% target range. Still, Banco de Mexico is likely to continue its easing cycle to help boost the economy. Next policy meeting is February 13 and another 25 bp cut to 7.0% is expected.

Brazil reports mid-January IPCA inflation Thursday and is expected to rise 4.33% y/y vs. 3.91% in mid-December. If so, this would be the highest reading since May and above the 4% target though within the 2.5-5.5% target range. With the economy showing some signs of life, we think the easing cycle is over. Next COPOM meeting is February 5 and rates are expected to be kept steady at 4.5%. CDI market is pricing in a decent chance of one last 25 bp cut, but we think the weak real will prevent this.

EUROPE/MIDDLE EAST/AFRICA

South Africa reports December CPI Wednesday. Headline inflation is expected to accelerate to 4.0% y/y from 3.6% in November. Yet that didn’t prevent the SARB from unexpectedly cutting rates 25 bp to 6.25% last week. Cleary, the sluggish economy is now taking precedent and we expect at least one more cut in this cycle. Next policy meeting is March 19.  Whether we see another 25 bp cut then will depend largely on the market reaction to the February 26 budget speech as well as the potential Moody’s downgrade thereafter.

Poland reports December industrial output and PPI Wednesday, with both expected to accelerate from November. Real retail sales will be reported Thursday, which are expected to rise 6.0% y/y vs. 5.2% in November. Central bank minutes will also be released that same day. CPI rose 3.4% y/y in December, the highest since October 2012 and nearing the top of the 1.5-3.5% target range. Yet central bank officials remain sanguine about the inflation outlook and appear dedicated to keeping rates steady through 2021. Next policy meeting is February 5 and rates are expected to be kept steady at 1.5%.

ASIA

Taiwan reports December export orders data Monday, which are expected to rise 0.2% y/y vs. -6.6% in November. If so, this would be the first positive reading since October 2018. Q4 GDP will be reported Tuesday, with growth expected at 2.94% y/y vs. 2.99% in Q3. December IP will be reported Wednesday, which is expected to rise 3.0% y/y vs. 2.15% in November. The economy remains sluggish but the worst may be over. Low price pressures should allow the central bank to remain on hold this year, though there may be some measures taken to limit currency strength.

Korea reports trade data for the first 20 days of January Tuesday. It then reports Q4 GDP data Wednesday, with growth expected to slow to remain steady at 2.0% y/y. Here too, the worst appears to be over. Bank of Korea just left rates unchanged at 1.25% last week. However, the communication turned more optimistic. A recent pick up in CPI and incoming fiscal stimulus are factors weighing against cuts near-term.

Bank Negara Malaysia meets Wednesday and is expected to keep rates steady at 3.0%. That same day, Malaysia reports December CPI and it is expected to rise 1.1% y/y vs. 0.9% in November. The central bank does not have an explicit inflation target, but low price pressures should allow it to cut rates this year if the economy slows.

Philippines reports Q4 GDP data Thursday, with growth expected at 6.4% y/y vs. 6.2% in Q3. If so, this would be the fastest rate since Q1 2018. Inflation is also picking up, with CPI rising 2.5% y/y in December. This is the highest since June but still in the lower half of the 2-4% target range. We think the bank will resume easing rates this year after standing pat in November and December. Next policy meeting is February 6 and much will depend on the January CPI report out the day before.

Singapore reports December CPI Thursday, which is expected to rise 0.7% y/y vs. 0.6% in November. MAS does not have an explicit inflation target, but low price pressures should allow it to ease policy at its semiannual policy meeting in April. December IP will be reported Friday, which is expected to contract -0.6% y/y vs. -9.3% in November.

Bank Indonesia meets Thursday and is expected to keep rates steady at 5.0%. A small handful of analysts look for a 25 bp cut to 4.75%. CPI rose 2.7% y/y in December, the lowest since March and nearing the bottom of the 2.5-4.5% target range. Bank Indonesia hiked rates 175 bp in 2018 and cut rates 100 bp in 2019. Consensus sees only 25 bp of easing in 2020 but we think it will cut more than once this year.

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About Win Thin
Win Thin
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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