Emerging Markets: Preview Of The Week Ahead – April 3, 2016

(from my colleague Dr. Win Thin)

Some dovish signals from the Fed and a bounce in oil prices helped EM end last week on a firm note. This week, the US retail sales report could be important, and the same goes for CPI and PPI data too. The Fed’s Dudley, Kaplan, Harker, Williams, Lacker, Lockhart, Powell, and Evans all speak this week. The Fed releases its Beige Book Wednesday for the upcoming FOMC meeting April 27. Within specific EM countries, risks remain in place. We continue to feel that markets are too optimistic regarding the impeachment process in Brazil.

China reports March CPI and PPI Monday. The former is expected at 2.4% y/y and the latter at -4.6% y/y. It then reports March trade Wednesday, with exports expected at 9.3% y/y and imports at -10% y/y. China reports March retail sales and IP as well as Q1 GDP Friday. For now, we think China is neutral to positive for market sentiment.

Czech Republic reports March CPI Monday, which is expected to rise 0.4% y/y vs. 0.5% in February. However, both Hungary and Poland reported lower than expected March inflation, and so we see downside risks to the Czech data. No wonder the central bank extended its forward guidance last month to maintain current policies until “near” mid-2017 vs. H1 2017 previously.

Taiwan reports March trade Monday. Exports are expected at -9.8% y/y and imports at -15.6% y/y. Export orders have remained weak, suggesting a poor export performance over the next six months. The central bank should continue to cut rates each quarter to help stimulate the economy.

Mexico reports February IP Monday, which is expected to rise 1.3% y/y vs. 1.1% in January. The economy is a bit sluggish even as price pressures are likely to remain low. For now, we see no further Banxico tightening this year. Next policy meeting is May 5, no action seen then.

India reports March CPI and February IP Tuesday. The former is expected to rise 5% y/y while the latter is expected to rise 1% y/y. The RBI issued a fairly dovish statement after its recent 25 bp cut, hinting that it is looking for further room to ease. If CPI continues to fall, another cut at the next RBI meeting June 7 is possible.