(from my colleague Dr.Win Thin)

EM FX closed Friday on a mixed note, but still posted solid gains for the week as a whole. Best performers last week were ZAR, PLN, and CZK while the worst were ARS, PHP, and IDR. The bearish dollar environment remains intact and so we see further gains for EM FX this week. However, we continue to warn that divergences within EM are likely to assert themselves. 

Brazil reports December central government budget data Monday. A deficit of -BRL25.0 bln is expected. If so, the 12-month total would narrow sharply to -BRL127 bln, the smallest since January 2016  It then reports consolidated budget data Wednesday. Tax revenues rose 8% y/y in December, suggesting a solid budget reading. December IP will be reported Thursday, which is expected to rise 3.3% y/y vs. 4.7% in November.

Colombia central bank meets Monday. The market is almost evenly split. Of the 35 analysts polled by Bloomberg, 17 see steady rates and 18 see a 25 bp cut to 4.5%. We think a 25 bp cut is likely. CPI rose 4.1% y/y in December, which is above the 2-4% target range. However, that didn’t stop the bank from easing last year in order to help boost the sluggish economy. 

South Africa reports December budget, money, and private sector credit Tuesday. Markets are likely to focus on the fiscal outlook ahead of next month’s budget statement. If the government cannot deliver a credible plan to limit the deficit, we think rating agencies will downgrade South Africa soon thereafter. December trade will be reported Wednesday.  

Central Bank of Turkey releases its quarterly inflation report Tuesday. CPI rose 11.9% y/y in December, which is well above the 3-7% target range. December trade will be reported Wednesday, with the deficit expected at -$9.6 bln. If so, this would raise the 12-month total to -$77.1 bln, the highest since July 2015. The external accounts are deteriorating, which is lira-negative. 

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