Emerging Markets Preview: The Week Ahead

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

Israel central bank meets Monday and is expected keep rates steady at 1.0%.  CPI inflation eased to 1.4% y/y in January, the lowest since September.  The economy remains sluggish, with growth expected to slow to 3.3% this year from 3.8% in 2013.  With inflation near the bottom of the 1-3% target range, the central bank has cover to cut rates again if needed.  We think the deciding factor will most likely be the exchange rate.  For USD/ILS, support seen near 3.50 and then 3.45, while resistance seen near 3.55 and then 3.60.

Mexico reports December retail sales and Q4 current account on Tuesday.  The former is expected at 0.4% y/y vs. 1.9% in November, while the latter is expected at -$4.7 bln vs. -$5.5 bln in Q3.  Today, it reported mid-February CPI at 4.21% y/y (vs. 4.29% expected and 4.63% in mid-January), while core also eased to 2.97% from 3.33% in mid-January.  January trade will be reported Wednesday, expected at $380 mln vs. $1.65 bln in December.  Q4 GDP growth came in weaker than expected at 0.7% y/y.  If weakness carries over into 2014 as we suspect, Banco de Mexico will have to acknowledge that its upbeat view needs to be adjusted.  For USD/MXN, support seen near 13.20 and then 13.00, while resistance seen near 13.40 and then 13.60.
South Africa reports Q4 GDP Tuesday and is expected at 2.1% y/y vs. 1.8% in Q3.  It will then report January PPI on Thursday followed by money and credit growth, budget, and trade data on Friday.  Overall, we expect a continued mix of sluggish growth, high price pressures, and wide external deficits to continue in 2014.  If the rand remains relatively stable, we do not think that the SARB will be in any rush to hike again.  For USD/ZAR, support seen near 10.75 and then 10.50, while resistance seen near 11.00 and then 11.50.
Singapore reports January IP Wednesday and is expected at 6.5% y/y vs. 6.2% in December.  The economy is showing modest signs of recovery, but price pressures remain under control as CPI rose only 1.4% in January.  If headwinds on the economy pick up, we would not rule out a move by the MAS to ease at its next meeting in April.  Otherwise, the MAS will most likely take a wait and see approach for now.  For USD/SGD, support seen near 1.26, while resistance seen near 1.27 and then 1.28.
Brazil central bank meets Wednesday and is expected to hike rates 25 bp to 10.75%.  Brazil reports Q4 GDP Thursday (expected at 1.5% y/y vs. 2.2% in Q3) and then budget data Friday.  Mid-February IPCA inflation came in slightly higher than expected at 5.65% y/y, but price pressures do still appear to be easing.  That is why we think that BCB is near the end of its tightening cycle.  For USD/BRL, support seen near 2.35 and then 2.30, while resistance seen near 2.40 and then 2.45.
Korea reports January IP on Friday and is expected at -1.8% y/y vs. +2.6% in December.  After markets close Friday (Saturday morning in Asia), Korea reports February trade.  This will be the first snapshot of global trade for the month, and comes after a disappointing January.  Consensus is for exports to rise 2.7% y/y and imports to rise 4.6%.  For USD/KRW, support seen near 1070 and then 1060, while resistance seen near 1080 and then 1090.
Turkey reports January trade on Friday and is expected at -$7.2 bln vs. -$9.9 bln in December.  Given the weak lira and higher oil prices last month, we think the risks are tilted towards a gap that is bigger than expected.  With inflation likely to rise too, we see economic fundamentals worsening before improving, and may force the central bank into hiking again.  For USD/TRY, support seen near the 2.16-2.17 area and then 2.10, while resistance seen near 2.20 and then 2.30.
India reports Q4 GDP Friday and is expected to slow to 4.7% y/y from 4.8% in Q3.  Price pressures are easing, and should allow the RBI to stand pat for the time being in order to give the economy some breathing room.  Growth is likely to remain sluggish this year, but we would not be surprised to see some fiscal stimulus ahead of May general elections.  For USD/INR, support seen near 62.00 and then 61.00, while resistance seen near 63.00 and then 64.00.

Colombia central bank meets Friday and is expected keep rates steady at 3.25%.  The economy is showing some signs of life, which is likely to keep the bank on hold for now. The weak peso should help boost the economy as well, while price pressures remain under control.  CPI rose 2.1% y/y in January, right at the bottom of the 2-4% target range.  This will give the bank leeway to cut later this year if growth starts to slow too much.  For USD/COP, support seen near 2025 and then 2000, while resistance seen near 2050 and then 2075.

This piece is cross-posted from Marc to Market with permission.