Emerging Markets Preview of Key Data and Policy Meetings

(from my colleagues Dr. Win Thin and Ilan Solot)

China data dump continues on Tuesday as it reports August IP and retail sales. On Monday, China reported August CPI, which came in as expected at 2.6% y/y. Over the next week, China will report new yuan loans and aggregate financing, with whisper numbers suggesting an upside surprise could be in the cards. We expect the economy to continue stabilizing in the months ahead, though the recovery is unlikely to be very robust. Indeed, a senior government economist said it may cut the 2014 target to 7% while adding actual growth would likely be higher than that. For now, we see USD/CNY trading sideways in the 6.10-6.15 range.

South Africa reports Q2 current account data Tuesday and is seen at -6.2% of GDP vs. -5.8% in Q1. The trade deficit narrowed in Q2, and so we think there is some scope for a better than expected print. However, it is unlikely to significantly alter the current bearish fundamental mix of high external financing needs, high inflation, and slow growth. USD/ZAR is attempting to finally break out of the 10.0-10.5 range that held since mid-August. Clean break of 10 would target 9.70 and 9.60. Resistance seen near 10.35 and then 10.50.

Bank of Korea meets Thursday and is expected to keep rates steady at 2.5%. Price pressures remain low even as the economy is still slowing and so we think easing may be seen ahead, especially if the won continues to firm. Indeed, it’s worth noting that yen weakness and won firmness has seen the pair drop below 11 today to the lowest level since May. A strong won may eventually push BOK into cutting rates Q4. For USD/KRW, support seen near 1080 and then 1060, resistance near 1100 and then 1120.

Bank Indonesia meets Thursday and consensus is for steady rates at 7.0%. However, some are calling for a 25 bp or 50 bp hike. We think ongoing rupiah weakness could push BI into delivering a 50 bp hawkish surprise to 7.5%. Recent precedence shows that the BI has relied on interest rates more than other EM central banks to fight currency weakness. In any case, it remains to be seen whether the rupiah can hang onto its recent gains. For USD/IDR, resistance seen near 11750, after which the next targets are the March 2009 high near 12015 an then the November 2008 high near 13000. Support seen near 11000 and then 10500.

Philippines central bank meets Thursday and is expected to keep rates steady at 3.5%. Mix of slowing economy and low inflation is likely keeping a dovish bias for the central bank, but for now it remains on hold. USD/PHP is trading at its highest levels since September 2010. Resistance seen near 45.00 and then 45.60, support seen near 44.0 and then 43.0.

India reports August CPI and July IP on Thursday. Data is expected to show a continued combination of slow growth and high inflation. It remains to be seen whether new RBI Governor Rajan will have a lasting positive impact on market sentiment. The rupee has also been helped by the generalized improvement in EM sentiment, and that too may be temporary. For USD/INR, support seen near 65 and then 64, resistance seen near 66 and then 68. Indian markets were closed Monday.

Chile central bank meets Thursday and is expected to keep rates steady at 5.0%. Its quarterly inflation report last week affirmed its easing bias even as it cut its growth and inflation forecasts. The central bank also noted that policy is likely to unfold close to market expectations, which we note is pricing in 50 bp of easing by year-end. We agree, and see easing commencing in Q4. Inflation of 2.2% y/y is at the bottom of its 2-4% target range. For USD/CLP, support seen near 505 and then 500, resistance seen near 510 and then 520.

Peru central bank meets Thursday and is expected to keep rates steady at 4.25%. Here too, the economy is slowing but inflation has been above the 1-3% target range for two straight months, standing at 3.3% y/y in August. We think easing is likely ahead, but not until inflation falls below 3% and back towards 2%. For USD/PEN, support seen near 2.80, resistance seen near the 2.8260-70 highs from August.

Emerging Markets Preview of Key Data and Policy Meetings Emerging Markets Preview of Key Data and Policy Meetings Reviewed by Marc Chandler on September 09, 2013 Rating: 5
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