The EM Data Week Ahead

Brazil reports January trade data on Monday. Brazil will also report December IP on Tuesday (expected at 0.2% y/y) and January IPCA inflation on Friday (expected at 5.67% y/y vs. 5.91% previously). Overall, the economy remains soft and the recent drop in inflation suggests the tightening cycle is almost over. We see one last 50 bp hike to 11.0% February 26. USD/BRL remains largely confined to the 2.40-2.45 range, but is likely to move higher if the EM sell-off continues as we expect.

Mexico reports January PMI on Monday. On Friday, January CPI will be reported and is expected at 4.5% y/y vs. 4.05 in December. Last Friday, Banco de Mexico kept rates steady at 3.5%, as expected. Minutes will come out later this month on February 14, but the statement after the decision suggests no perceived need to move rates either way this year as the risks seem very balanced for now. For USD/MXN, support seen near 13.20 while resistance seen near 13.60.

Korea reports January CPI on Tuesday, expected to remain steady at 1.1% y/y. This is well below the 2.5-3.5% target range. Over the weekend, Korea reported its January trade data. Domestic consumption remains modest, so the external sector needs to pick up the slack. JPY/KRW trading above 10.50 is positive for Korean exporters. For USD/KRW, support seen near 1060 while resistance seen near 1080 and 1090.

Hungary central bank minutes will be released Wednesday. At that last meeting, the bank cut rates by 15 bp to 2.85% and signaled further easing ahead. December retail sales will also be reported that same day (4.2% y/y expected), while December IP will be reported Thursday (6.1% y/y expected) and trade on Friday. Real sector data have picked up in Q4, but deflation risks (CPI rose only 0.4% y/y in December) are likely to keep the easing cycle alive for now. EUR/HUF making new multi-year highs above 310, trading at levels not seen since early 2012. All-time high from January 2012 is up ahead near 324.

Polish central bank meets Wednesday and is expected to keep rates steady at 2.5%. Like Hungary, Poland’s retail sales, IP, and exports have improved in recent months and should keep the central bank on hold. Here too, deflation risks are in play as CPI rose only 0.7% y/y in December. Some at the central bank see rate hikes by mid-year, but others see a later timetable. EUR/PLN making new highs for the year, trading at its highest level since September. Resistance seen near 4.25 and then 4.30, while support seen near 4.20 and then 4.15.

Philippines central bank meets and is expected to keep rates steady at 3.5%. Ahead of that, it will report January CPI on Wednesday, expected to remain steady at 4.1% y/y. If so, inflation would remain near the center of its 3-5% target range and gives the central bank little reason to move rates either way. However, with growth holding up well at 7% y/y in Q3, any acceleration in price pressures may lead to a more hawkish stance this year. USD/PHP is marching higher to levels not seen since 2010. Resistance seen near 45.50 and then 46.00, while support seen near 45.00 and 44.50.

Czech central bank meets Thursday and is expected to keep policy steady. On Wednesday, Czech retail sales for December will be reported. Thursday will see December trade, IP, and construction output. Like the rest of CEE, the Czech economy is showing signs of modest recovery. Inflation is starting to tick higher, and the 1.4% y/y rate in December is the highest since July 2013. We see no change to policy for the time being. For EUR/CZK, support seen near 27.50 while resistance seen near 27.75 and then 28.00.

Chile reports January trade on Friday. December data was mostly softer, with retail sales, manufacturing, and exports all coming in weak. January CPI will be reported Friday, expected to remain steady at 3% y/y and is right at the center of the 2-4% target range. For now, we see steady rates near-term but we believe the bank could resume cutting this year if the economy continues to slow. Q4 GDP growth is tracking around 2.8% y/y so far vs. 4.7% in Q3. CLP has been hurt by the recent drop today in copper. Clean break above 550 opens up the pair for further gains to some 2009 highs near 560. Retracement objectives from the big 2008/2011 drop in USD/CLP come in near 571 (50%) and then 598 (62%). We think many are starting to talk about 600 ahead.

India reports Q1 GDP on Friday. The RBI rate hikes under Rajan will take a toll on growth, but they have helped the rupee avoid a sharp sell-off during this bout of EM weakness. Inflation still needs to come down, or else the nominal policy rate will have to go higher until positive real rates are seen. For USD/INR, support seen near 62.00 while resistance seen near 63.00 and then 64.00.

(from my colleagues Dr. Win Thin and Ilan Solot)