EM Highlights

My earlier post focused on European developments, which are driving the markets today. At the same time, there are several noteworthy emerging market developments.

1. Taiwan central bank meets tomorrow. The key 10-day loan rate is likely to remain at 1.25%, but there is a risk that it hikes reserve requirements in the coming weeks. The country reported strong industrial production and export data earlier today.

2. A number of observers and former US officials are playing up the risk that the US Treasury report due out the middle of next month cites China as a currency manipulator. It is difficult to see the economic logic as China has not changed its behavior since re-pegging in mid-2008. Chinese officials are warning the China may report a trade deficit in March. Pegged exchange rates in and of themselves cannot by definition mean manipulation. Pegged exchange rates used to be the orthodoxy. The main thing that has changed besides the Chinese trade surplus falling in half from its peak, is the US political situation. Difficult to see any real good that will come from the possible move. It will not expedite a move from China.

3. South African bonds are under a bit of pressure today following the inflation report which seemed in line with expectations. The headline rate slowed to a 3-year low of 5.7% in Feb from 6.2% in Jan. The central bank targets inflation 3-6%. The strength of the rand could see dis-inflationary forces persist even in the early stages of economic recovery. Yesterday the central bank reported that household consumption (66% of GDP) rose in Q4 for the first time in 5 quarters.

4. Some of yesterday's strength of the Mexican peso yesterday may have been related to the successful sale of MXN15 bln (~$1.2 bln) 30-year inflation linked bonds. The yield was 4.27%. The auction was over-subscribed 3.5 times. Pension funds bought 65%. Foreign investors bought 5%, according to government figures. The US dollar found support just below MXN12.50 yesterday. Resistance now is seen near MXN12.56.