EM Preview for the Week of January 16, 2022

January 16, 2022

EM FX was largely stronger last week, taking advantage of broad-based dollar weakness against the majors. TRY, BRL, and PEN were the top performers while RUB, ARS, and CZK were the worst. After the dollar’s abrupt reversal higher Friday, investors will be watching to see if the greenback can build on those gains. If so, EM FX is likely to come under pressure again. Of note, U.S. yields ended the week at or near recently cycle highs. Higher rates and tighter global liquidity tend to be negative for EM and so this bears watching.


Colombia reports November trade data Monday. Monthly GDP will be reported Tuesday and is expected at 8.9% y/y vs. 9.3% in October. The economy remains strong even as price pressures are rising. CPI rose 5.62% y/y in December, the highest since December 2016 and further above the 2-4% target range. The central bank just hiked rates 50 bp to 3.0% on December 17 and signaled further hikes to come. The vote was split 4-3, with the dissents in favor of a larger 70 bp move. Next policy meeting is January 28 and a 75 bp hike to 3.75% is expected. Politics will remain a concern after presidential candidate Petro said he wants to form a multinational bloc to shift away from fossil fuels and questioned the need for further monetary tightening.


Russia reports November trade data Monday. Surging exports from high oil prices have pushed the 12-month trade surplus up to $160.5 bln, the highest since January 2020. Q4 current account data will be reported Tuesday and is expected at $44.3 bln vs. $36.9 ln in Q3. If so, the 4-quarter surplus would rise to $122.8 bln, the highest on record. While the external accounts are ruble-positive, it’s all about the politics right now. With talks with NATO breaking down, tensions with Ukraine are likely to remain high. A cyberattack on 70 Ukrainian government websites last week has been pinned on Russia but seems minor enough to preclude sanctions.

South Africa reports December CPI and November retail sales Wednesday. Headline inflation is expected at 5.7% y/y vs. 5.5% in November, while core is expected to remain steady at 3.3% y/y. If so, inflation would be the highest since March 2017 and nearing the top of the 3-6% target band. Retail sales are expected at 1.0% m/m vs. -1.3% in October. The bank just started a tightening cycle at its last meeting November 18 with a 25 bp hike to 3.75%. However, it was a 3-2 split decision and the lack of consensus suggests that the SARB's rather hawkish rate path will be difficult to meet. The bank’s model sees quarterly hikes over the course of 2022, 2023 and 2024. Next SARB meeting is January 27 and we see steady rates then.

Turkey central bank meets Thursday and is expected to keep rates steady at 14.0%. CPI rose 21.31% y/y in December, the highest since November 2018 but still well above the 3-7% target range. While the bank has signaled steady rates, the damage has been done as real rates remain negative and likely to get even more negative. Finance Minister Nebati said inflation won’t accelerate after this month and will stabilize as food costs improve. We should know soon enough whether his optimist outlook is justified. The latest central bank survey suggests otherwise, with end-2022 inflation seen at 25.37% and end-2023 seen at 15.54%. USD/TRY is seen at 16.13 at end-2022.

Poland reports December IP and PPI Friday. IP is expected at 13.1% y/y vs. 15.2% in November, while PPI is expected at 13.5% y/y vs. 13.2% in November. If PPI continues to accelerate, this suggests further upside risks to CPI, which rose 8.6% y/y in December. The central bank just hiked rates 50 bp to 2.25% on January 4 and signaled further hikes to come. Next policy meeting is February 8 and another 50 bp hike to 2.75% seems likely. However, the bank is falling further behind the curve and so we see some risks of a hawkish surprise then.


China reports December IP and retail sales and Q4 GDP data Monday. IP is expected at 3.7% y/y vs. 3.8% in November, while sales are expected at 3.8% y/y vs. 3.9% in November. GDP growth is expected at 1.2% q/q vs. 0.2% in Q3, while the y/y rate is expected at 3.3% vs. 4.9% in Q3. If so, the y/y rate would decelerate for the third straight quarter to the weakest since Q2 2020. The PBOC sets its 1-year Medium-term Lending Facility rate Monday, followed by commercial banks setting the 1- and 5-year Loan Prime Rates Thursday. With growth slowing, expectations are rising that the PBOC will cut rates in early 2022. While we concur, this week seems too soon.

Indonesia reports December trade data Monday. Exports are expected at 40.7% y/y vs. 49.7% in November, while imports are expected at 39.4% y/y vs. 52.62% in November. Export growth has remained robust but the 2022 outlook has been muddied by the recent ban on coal exports due to concerns about domestic shortages. Furthermore, reports suggest policymakers are mulling an export tax on nickel as part of a grand strategy of undertaking more processing domestically to capture greater value added. Bank Indonesia meets Thursday and is expected to keep rates steady at 3.5%. CPI rose 1.87% y/y in December, the highest since June 2020 but still below the 2-4% target range. Bloomberg consensus sees steady rates through H1, with 25 bp of tightening seen in H2.

Bank Negara Malaysia meets Thursday and is expected to keep rates steady at 1.75%. December CPI will be reported Friday, with headline inflation expected at 3.1% y/y vs. 3.3% in November. If so, this would be the first deceleration since August. The central bank does not have an explicit inflation target but easing price pressures should allow it to remain on hold for most of this year. At the last policy meeting November 3, the bank saw headline inflation averaging 2-3% in 2021 and remaining “moderate” in 2022, and saw core inflation average less than 1% in 2021 before edging higher in 2022 but “remain benign.” Bloomberg consensus sees steady rates through H1, with 25 bp of tightening seen in H2.

Taiwan reports December export orders Thursday. Orders are expected to rise 7.3% y/y vs. 13.4% in November. If so, this would be the slowest since June 2020 and would suggest weakness in export shipments coming around mid-year. Central bank Governor Yang said rates won’t be hiked to limit property prices as the costs would outweigh the benefits. He stressed that the bank would hike rates at an appropriate time, adding rates shouldn’t be adjusted based on the impact on a single sector and should instead be used to affect the overall economy. The bank just left rates steady at 1.125% on December, but Governor Yang warned that “Monetary policy is moderately loose now, but it will definitely move toward tightening next year.” He added that the bank decided to stay on hold because the economy is not overheating and there are uncertainties in the outlook. Bloomberg consensus sees the first 12.5 bp hike in Q3. CPI rose 2.62% y/y in December, decelerating from 2.85% in November.

Korea reports trade data for the first 20 days of January Friday. Exports rose 24.4% y/y in the first 10 days of the month, while imports rose 57.1% y/y. For the most part, exports have remained firm but the slowdown in Taiwan export orders warrants a note of caution for regional activity. The Bank of Korea just hiked rates 25 bp to 1.25% last week. Swaps market is pricing in 75 bp of further tightening in 2022 that would take the policy rate to a peak of 2%. However, given the BOK’s more hawkish stance, we see upside risks here.

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