Emerigng Markets: Preview of the Week Ahead

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

Korea reports March current account on Tuesday. It then reports March IP on Wednesday, expected to rise 3.7% y/y vs. 4.3% in February. April CPI comes out Thursday, expected to rise 1.5% y/y vs. 1.3% in March. We will also get our first glimpse at global trade in April, as Korea reports its data Thursday. Exports are seen rising 5.5% y/y, imports up 3.4%. GDP growth picked up to 3.9% y/y in Q1, continuing the recovery and keeping the BOK on hold for now. For USD/KRW, support seen near 1030 and then 1000, while resistance seen near 1040 and then 1050.

Brazil reports April IGP-M wholesale inflation on Tuesday, seen rising 8.02% y/y vs. 7.3% in March. It then reports consolidated budget data for March on Wednesday (primary surplus seen at BRL3.2 bln) and then April trade on Friday. We think inflation is still the key variable for Brazil, which impacts growth, monetary and FX policy. Next COPOM meeting is May 28, and there is still a lot of data to come out ahead of that. BCB decision not to fully roll over swaps on Friday suggests further BRL gains below 2.20 are not desirable. For USD/BRL, support seen near 2.20, while resistance seen near 2.25 and then 2.30.

Hungary central bank meets Tuesday and is expected to cut rates 10 bp to 2.50%. Minutes from the last meeting in March showed the same 7-2 vote to cut as we saw in February. However, minutes also showed that a majority of members judged that the base rate "had fallen very close to a level which ensured the medium-term achievement of price stability and a corresponding degree of support for the economy." We are near the end of the easing cycle. For EUR/HUF, support seen near 305, while resistance seen near 310 and then 315.

South Africa reports March money and credit, budget, and trade data all on Wednesday. Money and credit growth have picked up recently, but slowing is seen in March as the improvement will be hard to sustain in light of the late January rate hike and potential for more tightening. Next SARB meeting is May 22. Given higher than expected inflation readings for March, there is very small potential for a hawkish surprise but our base case is steady rates then. For USD/ZAR, support seen near 10.50, while resistance seen near 10.75 and then 11.00.

Turkey reports March trade on Wednesday, expected at -$5.8 bln vs. -$5.1 bln in February. If so, the 12-month total deficit would decline for the third straight month. Recent improvement is coming largely from the import side, as slow growth impacts consumer demand. That is why Erdogan is keen for the central bank to ease policy as soon as possible. Indeed, last week’s cut in the late liquidity rate suggests cuts in the policy rate will be seen soon, though the central bank stated that it would keep policy tight until inflation improves. For USD/TRY, support seen near 2.10, while resistance seen near 2.15 and then 2.20.

Chile reports March retail sales and manufacturing output on Wednesday. The former is expected to rise 5.0% y/y vs. 5.3% in February, while the latter is expected to rise 1.2% y/y vs. -2.0% in February. Note CPI rose 3.5% y/y in March, above the 3% target but still within the 2-4% target range. We see further easing ahead, and minutes out on May 5 should provide some clues on the timing. For USD/CLP, support seen near 560 and then 540, while resistance seen near 580. 

China reports official April PMI on Thursday, expected at 50.5 vs. 50.3 in March. HSBC flash PMI improved to 48.3 from 48.0 final in March, so data suggest that the Chinese economy may be stabilizing at a somewhat slower growth rate. We continue to downplay any talk of major stimulus efforts. Spot USD/CNY continues to creep higher, making new highs just above 6.25 even as the fix has been set marginally lower for four straight days. We see spot CNY remaining largely in the 6.20-6.30 range in Q2.

Thailand reports April CPI Thursday, expected to rise 2.3% y/y vs. 2.1% in March. Core seen at 1.4% vs. 1.3% in March, and continues to creep higher in the 0.5-3.0% target range. For now, we see BOT remaining on hold, even though the economy continues to suffer from the political uncertainty. Further easing in 2014 seems likely. For USD/THB, support seen near 32.00 and then 31.50, while resistance seen near 32.50 and then 33.00.

Indonesia reports April CPI Friday, expected to rise 7.25% y/y vs. 7.32% in March. Core is seen at 4.66% vs. 4.61% in March. It also reports March trade on Friday. Bank Indonesia then meets on May 8, and is expected to keep rates steady at 7.5% as price pressures have stabilized. For USD/IDR, support seen near 11500 and then 11250, while resistance seen near 11750 and then 12000.

Mexico reports April PMI on Friday, with manufacturing seen improving from 52.7 to 53.5. Data have continued to come in weak in Q1. If this continues through Q2, then we think Banxico may have to shift to a more dovish stance in H2 2014. On Friday, the central bank left rates steady at 3.5%, as expected. It also highlighted softness in Q1 as well as downside risks ahead despite “marginal” improvements recently. Prospects for lower yields have prevented the peso from gaining much traction this year, despite what most perceive as strong economic fundamentals. For USD/MXN, support seen near 13.00, while resistance seen near 13.20 and then 13.40.