EM Preview for the week of March 7, 2021

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

EM is coming off a horrible week and remains hostage to external developments.  The primary one is rising DM yields, which threaten to morph into another taper tantrum event despite official efforts to push back against the rise.  The secondary one is stronger global growth, which should continue to support EM.  For now, the former is likely to dominate the latter.  If the rise in US yields continues and threatens to destabilize global financial markets, then the Fed may have to strengthen its efforts at the March 16-17 FOMC.  If so, EM could move back to that Goldilocks scenario where both factors are being supportive.


Chile reports February CPI and trade data Monday.  Inflation is expected to remain steady at 3.1% y/y.  If so, it would remain near the center of the 2-4% target range.  Next central bank policy meeting is March 30 and rates are expected to remain at 0.50%.  Export growth has been strong due to high copper prices, while imports have ben depressed by the downturn in the economy.  As a result, the current account has moved into surplus, reducing the nation’s external vulnerabilities. 

Mexico reports February CPI Tuesday.  Headline inflation is expected at 3.75% y/y vs. 3.54% in January.  If so, it would be the highest since October and nearing the top of the 2-4% target range.  In its quarterly inflation report last week, the bank sees inflation ending  the year at 3.6% after peaking at 4.5% in Q2.  If inflation is indeed transitory as the bank expects, then another 1-2 cuts are possible.  Next Banxico meeting is March 25 and another cut so soon after the February one seems unlikely, especially if the peso remains under pressure.  January IP will be reported Friday and is expected at -3.7% y/y vs. -2.1% in December.

Brazil reports February IPCA inflation Thursday.  Headline inflation is expected at 5.03% y/y vs. 4.56% in January.  If so, it would be the highest since January 2017 and nearing the top of the 2.25-5.25% target range.  Next COPOM meeting is March 17 and markets are expecting a 50-75 bp hike to start the tightening cycle.  Retail sales will be reported Friday and are expected to fall -0.1% y/y vs. +1.2% in December.

Peru central bank meets Thursday and is expected to keep rates steady at 0.25%.  CPI rose 2.4% y/y in February, down from the 2.7% peak in January and closer to the center of the 1-3% target range.  Despite high copper prices, the sol continues to weaken to all-time lows due in large part to ongoing political uncertainty. The National Electoral Jury ruled that presidential front-runner George Forsyth can run in the April 11 election.  He was initially barred because he did not disclose all of his income when he registered as a candidate.


Israel reports Q4 current account data Monday.  Bank of Israel also releases its minutes that day.  At that February 22 meeting, the bank left rates steady at 0.10% but said it was more optimistic about 2021 growth that the risks remain high.  It also noted that shekel weakness since mid-January was supportive for exports and inflation.  FX intervention to weaken the currency remains the primary policy lever, as the bank bought $4.9 bln in February.  Along with January purchases, it has spent a total of $11.7 bln in the first two months, or nearly 40% of the planned $30 bln for the entire year.  Q4 GDP February consumer confidence will be reported Wednesday.  February trade and January chain store sales will be reported Thursday.

South Africa reports Q4 GDP Tuesday.  Growth is expected at 5.6% annualized vs. 66.1% in Q3.  Despite the recovery, unemployment remains high and price pressures remain low as CPI rose 3.2% y/y in January, near the cycle lows and at the bottom of the 3-6% target range.  The vote was 3-2 to keep rates steady at the January meeting.  The bank said then that its models still show two hikes this year, but we see risks of another cut of the economy remains weak.  Next SARB policy meeting is March 25.  Q4 current account data and January manufacturing production will be reported Thursday. A current account surplus equal to 4.3% of GDP is expected vs. 5.9% in Q3, while production is expected to fall -1.0% y/y vs. +1.8% in December.

Turkey reports January current account data Wednesday.  A deficit of -$1.5 bln is expected.  If so, the 12-month total would fall slightly to -$36.2 bln from -$36.7 bln in December.  The external accounts have been deteriorating but have become easier to finance now that the central bank hiked rates aggressively.  With inflation still rising, all eyes are on the central bank, which has been on hold since the last 200 bp hike back in December.  Next policy meeting is March 18 and it’s going to be a close call.  If the lira continues to weaken, then the central bank becomes more likely to hike rates then.  It then reports IP Friday, which is expected to rise 8.1% vs. 9.0% in December.


China reports February money and new loan data sometime this week.  New loans are expected to fall sharply because of the Lunar New Year holiday to CNY950 bln from 3.58 trln in January, while aggregate financing is expected to fall to CNY900 bln from CNY5.17 trln in January.  Over the weekend, China reported January and February trade and foreign reserves.  January and February were combined to avoid y/y distortions from the timing of the Lunar New Year, with exports surging 60.6% y/y vs. 40.0% expected and imports rising 22.2% y/y vs. 16.0% expected.  Reserves fell slightly to $3.205 trln.  CPI and PPI will be reported Wednesday.  CPI is expected to remain steady at -0.3% y/y while PPI is expected to pick up to 1.4% y/y vs. 0.3% in January.

Taiwan reports February CPI and trade data Tuesday.  Headline inflation is expected at 1.03% y/y vs. -0.16% in January.  If so, it would be the highest since last January.  The central bank does not have an explicit inflation target and so it has the leeway to keep policy accommodative  this year.  Next policy meeting is March 18 and rates are expected to remain steady at 1.1275%.  Exports are expected to rise 15.3% y/y vs. 36.8% in January, while imports are expected to rise 13.6% y/y vs. 29.9% in January.  Export orders have remained firm, suggesting strong shipments into H2. 

India reports February CPI and January IP Friday.  Inflation is expected at 4.83% y/y vs. 4.06% in January, while IP is expected to remain steady at 1.0% y/y.  If so, inflation would accelerate for the first time since the October peak of 7.61% but would remain within the 2-6% target range.  At its last meeting February 5, the Reserve Bank of India kept rates on hold at 4.0%. This made sense after the upside budget surprise.  If inflation remains relatively low, we see ongoing risks of a rate cut sometime this year.  Next RBI meeting is April 7. 

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