marctomarket.com / Dr. Win Thin / Feb 19, 2017
EM FX ended last week on a soft note, as some risk off sentiment crept back into the markets. The dollar gained broadly on Friday despite lower US rates as bonds rallied, the yen gained and equities sold off. Markit PMI for February Tuesday and FOMC minutes Wednesday could give the markets some further clues regarding Fed policy. We believe markets are underestimating the Fed’s capacity to tighten this year, which will eventually lead to stresses for EM.
Taiwan reports January export orders Monday, which are expected to rise 7.4% y/y vs. 6.3% in December. Q4 current account data will also be reported Monday. Taiwan reports January IP Thursday, which is expected to rise 2.7% y/y vs. 6.25% in December. The economic outlook is improving even as price pressures are rising. We believe the central bank will remain on hold at its next quarterly policy meeting in March.
Israel reports December manufacturing Monday. Data have been coming in strong, with GDP growing 6.2% annualized in Q4. Furthermore, inflation moved into positive territory in January for the first time since July 2014. All in all, the improving economic outlook supports our view that the central bank is unlikely to add any more stimulus via unconventional measures. However, we suspect it will continue to buy USD to prevent excessive shekel strength.
Russia reports January real retail sales Monday, which are expected at -5.1% y/y vs. -5.9% in December. The economy remains sluggish, but the 12.7% y/y jump in PPI for January will likely keep the central bank on cautious hold for now. Next policy meeting is March 24, and we see no move then.