EM RISK TIMELINE: Oil, Politics, Competitive Devaluations
(Bloomberg) -- Oil volatility and the risk of competitive currency weakening could be key themes for emerging markets in March, Bloomberg strategists, Paul Jarrett, Davison Santana and Mark Cranfield write.
MAIN RISKS
- CEEMEA
- South African rand remains under pressure as the government attempts to revive an economy under pressure from low growth, a weaker commodities complex and the worst drought in a century *** The recent budget managed to stave off a further credit downgrade for but has underwhelmed the market who was looking for a greater fiscal correction from finance minister Gordhan. The central bank is expected to raise rates again on March 17 as market looks for a further 100bps in 2016
- Russia’s economy remains closely tied to the price of oil, the correlation between ruble and WTI continues to trade at elevated levels
- Domestically the geopolitical landscape continues to provide uncertainty as sanctions and conflicts in Syria and the Ukraine provide a worrying local backdrop for markets
- Inflationary risks remain in focus with follow through from lower for longer oil prices and a subsequent weaker ruble
- The Bank of Russia has not ruled out possible interest rate increases if this negative scenario unfolds as it seeks to battle both low growth and towering inflation expectations; CPI on March 4 will be closely watched
- ASIA
- China’s National People’s Congress which runs from March 3 to 16 could trigger yuan volatility after the announcement of FX and macroeconomic targets, which are likely on March 5
- PBOC reiterated that monetary policy is prudent with a slight easing bias at last week’s G-20 meeting; FX market intervention is possible if reserves seen reasonable at $2t vs $3.2t as of Jan. 31
- Malaysian ringgit remains vulnerable as long as oil prices are volatile and FX reserves remain depleted from last year’s market intervention; foreign holdings of bonds are showing five months of gains, but are still below the level one year earlier
- LATAM
- Speculation tied to OPEC member remarks and meetings likely to remain as main broad potential catalyst for Latam FX as MXN, COP see direct impact and remaining currencies also influenced by major oil swings
- Brazil political gridlock intensifies as carwash probe advances, which makes headlines tied to investigation the biggest local BRL catalyst
- Risk of bargain pleas from people involved may quickly shift odds of President Rousseff being ousted and prompt currency swings
- Fresh fiscal data after positive surprise in January will be closely eyed as it brought skepticism among investors; voting of fiscal measures aimed to improve country’s budget may also affect sentiment
- Banxico seen no longer tied to Fed moves; rate decision and remarks March 18 will be scrutinized even with majority of investors expecting Fed to keep rates unchanged this year
- CALENDAR (based on local dates):
- March 2: South Korea BoP current account; Brazil rate decision
- March 3: China NPC until 16th; Mexico inflation report; Brazil GDP; Turkey CPI
- March 4: Malaysia trade balance: Russia CPI
- March 5: Colombia CPI
- March 7: Malaysia and China foreign reserves; Chile IMACEC
- March 8: China trade balance; Chile CPI; Hungary CPI
- March 9: Malaysia central bank meeting; Mexico CPI; Brazil CPI
- March 10: China CPI; Bank of Korea meeting; India exports; Colombia GDP; Brazil minutes; Israel GDP
- March 11: Colombia Minutes; Poland base rate
- March 12: China IP
- March 17: Singapore non-oil exports; Indonesia central bank; Chile rate decision; South Africa rate decision; Poland PPI
- March 18: Colombia rate decision; Chile GDP; Mexico rate decision; Russia rate decision
- March 22: Malaysia foreign reserves
- March 23: Malaysia CPI; Singapore CPI; Thailand and Philippines central bank meetings; Brazil Bi-weekly CPI; South Africa CPI
- March 25: South Korea 4Q GDP (final)
- March 28: Israel base rate
- March 29: Mexico IGAE; Brazil central govt budget balance
- March 30: Chile retail sales, IP; Brazil primary budget balance; South Africa budget
- NOTE: Paul Jarrett, Davison Santana and Mark Cranfield are strategists who write for Bloomberg. The observations they make are their own.
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