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Here's a look at the main drivers in Emerging Markets this week.

EM FX is coming off a solid week despite the dollar getting some traction against the majors. This divergence is likely to continue in 2021. We are getting increasingly confident that the dollar can to carve out a bottom against the euro, sterling, yen, and Swissie in Q1. However, the greenback is likely to continue losing ground to EM FX and the growth-oriented majors (dollar bloc and Scandies) if the global outlook continues to improve. Of note, both MSCI EM and MSCI EM FX clawed back the previous week’s losses.


Chile reports January CPI and trade data Monday. Headline inflation is expected to fall a tick to 2.9% y/y. If so, it would move back into the lower half of the central bank’s 2-4% target range. The bank left rates steady at 0.5% at its January meeting but extended a credit facility by six months and expanded it by $10 bln. The headwinds remain strong, as the government last month widened its lockdowns so that nearly 25% of the population are living with under strict restrictions. Further stimulus is likely to come from the fiscal side.

Mexico reports January CPI Tuesday. Headline inflation is expected at 3.46% y/y vs. 3.15% in December. If so, it would be the highest since October but still within the central bank’s 2-4% target range. Banco de Mexico meets Thursday and is expected to cut rates 25 bp to 4.0%. Many see this as the end of the easing cycle but we are not convinced. December IP will also be reported Thursday and is expected to fall -2.2% y/y vs. -3.7% in November.

Brazil reports January IPCA consumer inflation Tuesday. Headline inflation is expected at 4.61% y/y vs. 4.52% in December. If so, it would be the highest since May 2019 and moving closer to the top of the central bank’s 2.25-5.25% target range. The central bank opened the door for a tightening cycle at its January meeting and is likely to hike rates 25-50 bp at the next COPOM meeting March 17. December retail sales will be reported Wednesday and are expected to rise 5.5% y/y vs. 3.4% in November.

Peru central bank meets Thursday and is expected to keep rates steady at 0.25%. CPI rose 2.7% y/y in January, the highest since May 2019 and nearing the top of the 1-3% target range. Still, the economy remains weak and so policymakers are likely to remain accommodative for much of this year. Further stimulus is likely to come from the fiscal side.

Colombia reports December trade Thursday. Manufacturing production and retail sales will be reported Friday. Production is expected to rise 1.0% y/y vs. -0.2% in November, while sales are expected to rise 2.4% y/y vs. 4.1% in November. January CPI was reported last week at 1.60% y/, still below the 2-4% target range. Inflation appears to have bottomed out and is starting to edge higher even as the economy recovers and so the central bank is likely on hold for now. Next policy meeting is March 26 and rates are likely to be kept at 1.75% then.


Czech Republic reports December industrial and construction output and trade Monday. January CPI will be reported Friday, with headline inflation expected at 1.7% y/y vs. 2.3% in December. If so, it would be the lowest since March 2018 and in the bottom half of the 1-3% target range. Last week, the central bank kept rates steady at 0.25% but kept its forecast for rates rising around mid-year. That said, Governor Rusnok admitted that hikes may come later than forecast due to the uncertain nature of the pandemic. Next policy meeting is March 24 and no change is expected then.

South Africa reports December manufacturing production Thursday. It is expected to fall -0.6% m/m vs. -1.3% in November, while the y/y rate is expected at -1.2% vs. -3.5% in November. The economy remains weak and price pressures remain low, and yet SARB has kept rates steady since the last 25 bp cut last July. Perhaps the bank is waiting for the February 24 budget statement before moving on rates. Next SARB meeting is March 25 and a 25 bp rate cut to 3.25% is possible then.

Russia reports December trade Thursday. Despite rising oil prices, exports continue to fall y/y due to in large part to OPEC+ output restrictions. As those ease, exports and growth should recover. Import growth has held up and so the external deficits have deteriorated and so bear watching. The central bank meets Friday and is expected to keep rates steady at 4.25%. CPI rose 5.2% y/y in January, the highest since April 2019 and further above the 4% target. With inflation accelerating, the easing cycle likely ended with the last 25 bp cut back in July.

Turkey reports December IP and current account data Friday. IP is expected to rise 7.9% y/y vs. 11.0% in November, while the deficit is expected at -$3.70 bln. If so, the 12-month total would rise to -$39 bln, the highest since September 2018. Luckily, high rates will help Turkey finance its twin deficits. Central bank Governor Agbal said he does not expect to cut rates from the current 17% until much later this year given upward pressure on inflation. He added that rate hikes are still a possibility, stressing that the bank intends to stay ahead of the market, including tightening quickly if there are signs that inflation could move higher than expected.


The Lunar New Year holiday will be observed across much of Asia this week. China markets will close February 11 and reopen February 18. Taiwan will close February 10 and reopen February 17. Hong Kong will close February 12 and reopen February 16. Korea will close February 11 and reopen February 15. Singapore, Indonesia, Malaysia, Philippines, and Thailand will only close February 12.

China reports January money and loan data sometime this week. Aggregate financing is expected to jump CNY4.6 trln vs. CNY1.7 trln in December, with the bulk coming from an expected CNY3.5 trln jump in new yuan loans. Foreign reserves were reported over the weekend and fell slightly to $3.21 trln from $3.22 expected. CPI and PPI will be reported Wednesday, with the former expected at -0.1% y/y vs. 0.2% in December and the latter expected at 0.3% y/y vs. -0.4% in December. After that, markets will close for the holiday until February 18. Ahead of that, we expect the PBOC to do some last minute tweaks to liquidity to help ensure few disruptions during the break.

Malaysia reports December IP and manufacturing sales Monday. IP is expected to contract -0.2% y/y vs. -2.2% in November. Q4 GDP and current account data will be reported Thursday. GDP is expected to grow 0.3% q/q vs. 18.2% in Q3, while the y/y rate is expected at -3.3% vs. -2.7% in Q3. Bank Negara just kept rates steady at 1.75%, as expected. However, the bank left the door open for further easing by noting that policy going forward “will be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth.” Ongoing deflation risks as well as widening lockdowns warn of an eventual rate cut this year, perhaps as early as the next meeting March 4.

Taiwan reports January trade data Monday. Exports are expected to rise 23.7% y/y vs. 12.0% in December, while imports are expected to rise 23.3% y/y vs. 0.9% in December. The y/y comparisons will be flattered due to the timing of the Lunar New Year holiday, which was in January last year. This means this February’s y/y comparisons will be distorted lower. That said, the underlying signal is one of solid growth, as export orders point to strong shipments into H2.

Philippine central bank meets Thursday and is expected to keep rates steady at 2.0%. January CPI rose 4.2% y/y in January, much higher than expected. Inflation is the highest since January 2019 and moved above the 2-4% target range for the first time since then. The bank sees inflation staying above the mid-point of this range in H1 before falling below 3% thereafter. As such, Governor Diokno said recently that there will be a "long pause" in the easing cycle and its current monetary stance will likely stay in place for two quarters or more.

India reports January CPI and December IP Friday. Inflation is expected to fall to 4.40% y/y from 4.59% in December, while IP is expected to fall -0.5% y/y vs. -1.9% in November. If so, inflation would be the lowest since September 2019 and further within the 2-6% target range. As such, we see ongoing risks of a rate cut later this year. The RBI left rates steady at 4.0% last week, which made sense after the upside budget surprise. While it also started to take back the pandemic-related 100 bp cut in the reserve with a 50 bp hike last week, Governor Das said the bank was moving to more targeted cash injections. We do not think normalizing policy means the easing cycle has ended.

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