Emerging Markets: The Week Ahead

 (from my colleague Dr. Win Thin)

Mexico reports mid-March CPI Monday.  The headline rate is seen falling to 3.91% y/y from 4.21% in mid-February, while the core rate is seen falling to 2.89% from 2.98% in mid-February.  The central bank kept rates steady at 3.5% on Friday, as expected.  However, the accompanying statement was very dovish, focusing on a weak growth outlook and seeing little in the way of lasting price pressures.  Bottom line, steady rates there for the time being but the emphasis on the poor growth outlook suggests risks are tilted to the next move being a cut, not a hike.  On Thursday, it reports February trade.  For USD/MXN, support seen near 13.20 and then 13.00, while resistance seen near 13.40 and then 13.60.

Israel central bank meets Monday and is expected to keep rates steady at 0.75%.  The last 25 bp cut in February was due to lower than expected inflation.  Since then, February CPI came in lower than expected again at 1.2% y/y, which is near the bottom of the 1-3% target range.  A strong shekel is not desirable, and we expect continued intervention if the currency firms.  For USD/ILS, support seen near 3.45, while resistance seen near 3.50 and then 3.55.

Hungary central bank meets Tuesday and is expected to cut rates 10 bp to 2.6%.  Minutes from the February meeting showed a 7-2 vote to cut by 15 bp.  The two dissenters wanted rates kept steady.  We think the end of the easing cycle is approaching, with rates troughing at or just below 2.5%.  Still, deflationary risks remain high, with CPI up only 0.1% y/y in February after a flat reading in January.  The central bank promised a more detailed interest rate outlook after the CPI data, so this meeting will be an important one.  For EUR/HUF, support seen near 310 and then 305, while resistance seen near 315 and then 320.

Singapore reports February IP on Wednesday, expected at 12.5% y/y vs. 3.9% in January.  Earlier today, it reported February CPI at 0.4% y/y vs. an expected 0.9% and 1.4% in January.  Price pressures have dropped sharply, while the economy remains sluggish.  The MAS is likely to keep policy steady at its April meeting, but recent inflation trends suggest that the odds of a dovish surprise then are rising.  For USD/SGD, support seen near 1.27 and then 1.26, while resistance seen near 1.28.

Philippines central bank meets Thursday and is expected to keep rates steady at 3.5%.  Inflation remains elevated, as CPI rose 4.1% y/y in February.  The economy remains in good shape, but is showing some signs of modest slowing.  We see the central bank remaining on hold for the time being.  For USD/PHP, support seen near 45.00 and then 44.50, while resistance seen near 45.50 and then 46.00.

Taiwan central bank meets Thursday and is expected to keep rates steady at 1.875%.  The economy is certainly sluggish, and will feel the impact of the mainland slowdown.  With CPI still tipping close to persistent deflation (-0.1% y/y in February), we think there is a slight risk of a dovish surprise this week.  For USD/TWD, support seen near 30.40, while resistance seen near 30.60 and then 31.00.

Czech central bank meets Thursday and is expected to keep policy steady.  Central bank head Singer has reiterated that the EUR/CZK floor at 27.00 will remain in place until at least early 2015, and that this is supported by the inflation data.  For EUR/CZK, support seen near 27.30 and then 27.00, while resistance seen near 27.50 and then 27.75.

South Africa central bank meets Thursday and is expected to keep rates steady at 5.5%.
  Earlier that day, it reports February PPI and is expected to rise 7.3% y/y vs. 7.0% in January.  CPI rose 5.9% in February, just below the 6% ceiling of the target band.  However, given the weak state of the economy, we do not expect a policy response anytime soon.  On Friday, South Africa reports February budget data.  For USD/ZAR, support seen near 10.50, while resistance seen near 11.00.

Brazil reports March IGP-M inflation on Friday and is expected to rise 1.53% m/m.
  Second preview IGP-M reading was higher than expected at 1.4% m/m, which if sustained will push the y/y rate up past 7%.  COPOM next meets April 2, and expectations are for a 25 bp hike to 11%.  We think the central bank would like to stop there, but the worsening inflation backdrop complicates things.  February budget data is also out on Friday, with the primary balance expected at -BRL400 mln vs. BRL19.9 bln in January.  We expect worsening budget readings ahead of the October elections.  For USD/BRL, support seen near 2.30, while resistance seen near 2.35 and then 2.40.

Chile releases central bank minutes on Friday.  Central bank President Vergara said last week that it maintains an easing bias, but that the bias has moderated.  In other words, after 25 bp rate cuts for two straight months and in four of the past six, the pace of easing is likely to slow.  He added that the bank is not worried about the recent pickup in inflation, which is seen as transitory.  Next meeting is April 17, and we think it may stand pat then to see how the economy is reacting to previous rate cuts.  For USD/CLP, support seen near 560 and then 540, while resistance seen near 580 and then 600.

Emerging Markets: The Week Ahead Emerging Markets:  The Week Ahead Reviewed by Marc Chandler on March 24, 2014 Rating: 5
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