Previous post Next post

EM Preview for the Week Ahead

Market sentiment is likely to open this week on an upswing after the Fed’s emergency rate cut and expanded QE were announced Sunday afternoon local time.  Yet as we have seen time and again this past couple of weeks, added stimulus has had little lasting impact on markets as the virus numbers continue to worsen.  Europe is now reporting more daily cases than China did at its peak.  We remain negative on EM until the global growth outlook becomes clearer.

AMERICAS

Brazil COPOM meets Wednesday and is expected to cut rates 25 bp to 4.0%.  Some look for an even deeper 50 bp cut.  IPCA inflation was 4.01% in February, right at the 4% target.  However, policymakers are focused on boosting the sluggish economy.  What may be getting lost in the market turmoil is the fact that Congress is defying President Bolsonaro’s fiscal reform agenda.  Spending was raised by around BRL217 bln over the next ten years, which works out to be about 20% of the projected savings from pension reforms approved last year.  Bolsonaro’s veto was overruled.

Chile reports Q4 GDP and current account data Wednesday.  The economy is expected to contract -1.8% y/y vs. +3.3% in Q3.  The economy was already struggling before the coronavirus hit.  Next central bank meeting is March 31 and a 25 bp cut to 1.5% seems likely.  After trading at new all-time low last week near 858, the central bank is likely to continue intervening this week to help support it.

EUROPE/MIDDLE EAST/AFRICA

Poland reports January trade and current account data Monday.  It reports February industrial output and PPI Thursday, with the former expected to rise 2.3% y/y and the latter by 0.3% y/y.  Central bank minutes will also be released Thursday.  At that meeting, policymakers hinted at potential easing if the economy were to slow significantly.  Construction output and real retail sales will be reported Friday, with the former expected to rise 1.5% y/y and the latter by 4.4% y/y.

Russia reports February IP Tuesday and is expected to rise 1.0% y/y vs. 1.1% in January.  The central bank meets Friday and is expected to keep rates steady at 6.0%.  Real retail sales will also be reported Friday and are expected to rise 2.9% y/y vs. 2.7% in January.  Low oil prices will be a headwind for the economy and so we expect rate cuts to continue.

South Africa reports February CPI and January retail sales Wednesday.  Inflation is expected to remain steady at 4.5% y/y, while sales are expected to rise 0.4% y/y vs. -0.4% in December.  SARB then meets Thursday and is expected to cut rates 25 bp to 6.0%.  However, some analysts are looking no cut while others look for a deeper 50 bp cut to 5.75%.  The rand is the wild card, but there is no denying that the economy needs stimulus.

Turkey central bank meets Thursday and is expected to cut rates 50 bp to 10.25%.  As usual, expectations are all over the place.  Some see no cut, while others see cuts of 25, 50, 75, and 100 bp.  Inflation accelerated for the fourth straight month to 12.37% y/y, the highest since August and further above the 3-7% target range.  However, policymakers are under pressure to deliver stimulus and so another small cut is likely.

ASIA

China reports combined January/February IP and retail sales Monday.  The former is expected to contract -3.0% y/y while the latter is expected to contract -4.0% y/y.  PBOC holds its monthly adjustment to its benchmark Loan Prime Rates.  The 1- and 5-year LPR are expected to be cut modestly to 3.95% and 4.70%, respectively.  Policymakers are expected to continue adding stimulus to help the economy recover from the coronavirus.

Bank Indonesia meets Thursday and markets are split between no change and a 25 bp cut to 4.5%.  One analysts sees a 50 bp cut to 4.25%.  Inflation was 2.98% y/y in February from 2.9% in January, below the 3.5% target but within the 2.5-4.5% target range.  With risks to the economy rising, we expect stimulus to continue in the coming months.  Last week, an emergency fiscal package was announced.

Philippines central bank meets Thursday and is expected to cut rates 25 bp to 3.5%.  Inflation fell to 2.6% y/y in February from 2.9% in January, below the 3% target but within the 2-4% target range.  With risks to the economy rising, we expect easing to continue in the coming months.  Fiscal stimulus is also likely, though the government is already forecasting that it will miss this year’s deficit target of -3.2% of GDP due to the coronavirus impact.

Taiwan central bank meets Thursday and is expected to keep rates steady at 1.375%.  However, a handful of analysts look for a 12.5 bp cut to 1.25%.  Taiwan then reports February export orders Friday, which are expected to contract -0.6% y/y vs. -12.8% in January.  After announcing a TWD60 bln fiscal package last week, policymakers plan to spend an additional TWD40 bln to help support the economy further.

Full story here Are you the author?
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
Previous post See more for 5.) Brown Brothers Harriman Next post
Tags: ,,

Permanent link to this article: https://snbchf.com/2020/03/thin-em-preview-21/

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.