Emerging Markets: Week Ahead Preview:

by Marc Chandler

(from my colleague Dr. Win Thin)

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EM FX had a stellar week, ending on a strong note in the aftermath of what the market perceived as a dovish Fed hike Wednesday. Every EM currency except ARS was up on the week vs. USD, with the best performers ZAR, TRY, COP, and MXN. There are some risks ahead for EM this week, with many Fed speakers lined up and perhaps willing to push back against the market’s dovish take on the FOMC.

Taiwan reports February export orders Monday, which are expected to rise 17.8% y/y vs. 5.2% in January. The central bank holds its quarterly policy meeting Thursday and is expected to keep rates steady at 1.375%. While the central bank does not have an explicit inflation target, rising price pressures are likely to push it into a more hawkish stance this year. While steady rates are likely in 2017, the start of a tightening cycle is possible in 2018. Taiwan also reports February IP Thursday, which is expected to rise 10% y/y vs. 2.8% in January.

Chile reports Q4 GDP Monday, which is expected to grow 0.5% y/y vs. 1.6% in Q3. If so, this would be the slowest rate since Q3 09. No wonder the central bank is easing, as it just cut rates for a second time since the easing cycle started in January. With inflation below the 3% target, further easing seems likely. Next policy meeting is April 13, and another 25 bp cut then is possible.

South Africa reports February CPI Wednesday, which is expected to rise 6.3% y/y vs. 6.6% in January. If so, this would be the second straight month of disinflation, but still above the 3-6% target range. There has been a string of weak data but SARB can't cut just yet. The firm rand has helped and so if current trends continue, we think SARB will start thinking about an easing cycle in H2. Q4 current account data will also be reported Wednesday too, which is expected at -3.4% of GDP vs. -4.1% in Q3.

Brazil reports mid-March IPCA Wednesday, which is expected to rise 4.73% y/y vs. 5.02% in mid-February. If so, it would be the lowest rate since September 2010 and supports the case for a larger 100 bp at the next COPOM meeting April 12. However, it appears that the pace of disinflation is slowing. Brazil reports February current account and FDI data Friday.

Singapore reports February CPI Thursday, which is expected to rise 0.7% y/y vs. 0.6% in January. If so, this would be the highest rate since September 2014. While the MAS does not have an explicit inflation target, rising price pressures should keep it on hold at its next semiannual policy meeting in April. Singapore then reports February IP Friday, which is expected to rise 7.5% y/y vs. 2.2% in January.

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About the author

Marc Chandler has been covering the global capital markets in one fashion or another for more than 25 years, working at economic consulting firms and global investment banks.

Officially, Marc Chandler is Global Head of Currency Strategy, Brown Brothers Harriman since October 2005. Previously he was the Chief Currency Strategist for HSBC Bank USA and Mellon Bank.

Opinions expressed are solely of the author’s, based on current market conditions, and are subject to change without notice. These opinions are not intended to predict or guarantee the future performance of any currencies or markets. This material is for informational purposes only and should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision. Further, this communication should not be deemed as a recommendation to invest or not to invest in any country or to undertake any specific position or transaction in any currency. There are risks associated with foreign currency investing, including but not limited to the use of leverage, which may accelerate the velocity of potential losses. Foreign currencies are subject to rapid price fluctuations due to adverse political, social and economic developments. These risks are greater for currencies in emerging markets than for those in more developed countries. Foreign currency transactions may not be suitable for all investors, depending on their financial sophistication and investment objectives. You should seek the services of an appropriate professional in connection with such matters. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete in its accuracy and cannot be guaranteed.

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