Emerging Markets: Preview Of The Week Ahead – Jan. 14

EM FX continues to rally as the dollar remains on its back foot. With no obvious drivers this week that might help the dollar, we believe EM FX can extend the recent gains. Still, we continue to advise caution when investing in EM, as differentiation should again become evident as idiosyncratic risks remain in play.  

Indonesia reports December trade data Monday. Exports are expected to rise 13.7% y/y and imports by 18.0% y/y. Bank Indonesia then meets Thursday and is expected to keep rates steady at 4.25%. CPI rose 3.6% y/y in December, below the 4% target but within the 3-5% target range.  Price pressures are rising, however, and should keep BI on hold for now.  

India reports December WPI Monday, which is expected to rise 4.0% y/y vs. 3.93% in November. Last Friday, CPI came in at 5.2% y/y vs. 5.1% expected. This is the highest rate since July 2016 and further above the 4% target, though still within the 2-6% range. We think markets should forget about any more RBI easing for the time being. Next policy meeting is February 7, no changes expected.  

Brazil reports November GDP proxy Monday. It is expected to rise 2.5% y/y vs. 2.9% in October. The recovery continues, but price pressures are rising.  COPOM signaled a willingness to ease further, and so markets are looking for a 25 bp cut to 6.75% at the next policy meeting February 7.  

Poland reports November trade and current account data Monday. It then reports December industrial and construction output, real retail sales, and PPI Friday. All are expected to slow significantly from November. Inflation eased in December, and so recent data support the central bank’s forward guidance of no rate hikes in 2018. Next policy meeting is February 7, no change is expected.  

Israel reports December CPI Monday, which is expected to rise 0.4% y/y vs. 0.3% in November. The central bank just left rates steady last week, as the bar for further easing is very high. Instead, Governor Flug complained about the strong shekel.  A weaker currency is the central bank’s only lever right now to stimulate the economy and so continued intervention is likely.