Written by my colleague Dr. Win Thin
EM FX ended the week on a soft note, as the weaker than expected US jobs data was unable to derail the dollar’s rally. For the week, the worst performers were ZAR (-3%), TRY (-2.5%), and RUB (-2%).CZK bucked the trend, rising after the CNB exited the cap. This week, higher inflation readings in the US could draw market focus back to Fed tightening, which would be negative for EM. Risks of further flare ups in Syria could also lead to risk-off trading.
China reports March money and new loan data this week, but no date has been set.March CPI and PPI will be reported Wednesday. The former is expected to rise 1.0% y/y and the latter by 7.5% y/y. March trade will be reported at the end of the week. In USD terms, exports are expected to rise 3.4% y/y, while imports are expected to rise 15.5% y/y.
Venezuela has $2.1 bln in PDVSA debt payments due this week. Press reports suggest senior officials met last week and agree to continue servicing its external debt (for now). Despite the rebound in oil prices, foreign reserves have fallen to $10.4 bln in March, the lowest since May 2002.We believe default risk will remain elevated this year.
Czech reports March CPI Monday, which rose as expected to 2.6% y/y vs. 2.5% in February. This would be the highest rate since November 2012 and is creeping closer to the top of the 1-3% target range. Given low base effects from 2016, we see risks that inflation moves above the target range this year.Core CPI and PPI measures are also accelerating.On the other hand, significant CZK strength after the cap was lifted could help limit price pressures.
Turkey reports February IP Monday, which is expected to rise 2.5% y/y vs. 2.6% in January, but instead contracted by 0.4% on the month to bring the year-over-year rate to 1.0%. The economy remains sluggish, and yet the weak lira will likely force the central bank to tighten policy again at its next policy meeting April 26.Markets remain nervous ahead of the referendum next weekend, with polls showing a narrow “yes” win that would expand the powers of the presidency.
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