S&P 500 now up 19.6% off its November lows and the euro (NYSEArca:FXE) up about 4.5% against the dollar over the last couple of weeks, the market could see a significant sell-off if the news is less than optimal.
World markets continued their general upwards momentum last week up to and through Wednesday’s announcement by the Federal Reserve.
Future rate increases keep getting pushed out further and further as soft domestic growth and no solution to the European crisis weighs on monetary policy. The dollar weakened last week as the Fed released its first-ever projections with 11 of the 18 members seeing rate increases in late 2014.
In Greece, Bloomberg reported on Saturday that an understanding had been reached on key legal and technical issues and a deal would be concluded by the end of this week. While a deal on Greece may keep the country from a default, it still does little to solve the underlying crisis in Europe.
The ECB has provided some stability with its three-year loan program, but investors should be ready for a return of volatility on headline risks. Another volatility-inspired, risk-off trade would send the higher-beta emerging markets down so some profit taking and hedging may be appropriate.
Elsewhere this week, we see three rate decisions (Colombia, Malaysia, and Russia) and a slew of PMI reports. Though earnings will still probably take center stage, Wednesday has the potential to see increased volatility and volume on economic reports. Most data is expected to be relatively softer and could lead to a reassessment of economic growth for the first half of 2012.
Monday, January 30
Philippine GDP in the last quarter is seen increasing marginally to 3.7% from the previous reading of 3.2% on stimulus plans announced late last year. Inflation expectations of around 4% should give the monetary and fiscal authorities plenty of room to drive growth which may close around 4.5% for the year.
Chile reports industrial production and retail sales with expectations for both to be relatively weaker. Industrial production could slow to around 1.1% (vs. 2.0% prior) and retail sales could come in sub-8.0% against last month’s reading of 8.5 percent.
The Colombian Central Bank will most likely leave the overnight lending rate at 4.75% and give the several prior rate increases time to slow inflation. There has been a steadily increasing chorus in the country for some form of intervention on the peso which has strengthened 7.2% against the dollar over the last few months.
Baidu Inc (NASDAQ:BIDU) reports after the market closes on Monday with expected quarterly earnings of $0.91 per share. The $45.8 billion Chinese company provides internet search services and had 412,000 active online marketing customers as of December 2010. Though the company trades at a trailing price-earnings of around 50 times, investors are betting on continued growth and a return-on-equity of 56.5% on a trailing basis. Standard & Poor’s has a $180 price target on the stock for the next twelve months.
Tuesday, January 31
The Bank of Malaysia will most likely keep its overnight rate at 3% but the risk is to a cut as low inflationary expectations may allow the bank to spur growth against slower global demand. The central bank has been more restrictive relative to others in the region. The country fund, the iShares MSCI Malaysia ETF (NYSEArca:EWM), was a standout last year with a decrease of only 7.0% versus much larger losses in other emerging market funds.
Brazil’s industrial production for the last quarter may come out as less bad with a decrease of only 0.5% against a prior decline of 2.5%. The country has been aggressively cutting the benchmark SELIC rate to support growth in the face of declining exports.
Empresa Nacional de Electricidad (NYSE:EOC) is expected to report $0.84 per share net income on Tuesday. The Chilean utility provider pays a dividend yield of 4.2% and has foreign operations in Colombia, Argentina, and Peru. The three Andean countries are projected to see the strongest economic growth of the region this year. Argentina has recently cut utility subsidies to commercial users but allowed a small increase in the amount providers can charge. Still, significant regulatory risks exist for providers to the Argentine utility consumer.
Enersis (NYSE:ENI) reports earnings with estimates around $0.40 per share. The Chile-based utility provider pays a dividend yield of 4.3% and has foreign operations in Argentina, Brazil, Colombia, and Brazil. Brazil (NYSEArca:EWZ), though projected to see lower growth than smaller countries in the region, should see strong demand over the next few years as the country builds out for the World Cup and the Summer Olympics. Fitch recently affirmed the company’s credit rating at BBB+ with a stable outlook on its $663 million of dollar-denominated debt.
Lan Airlines (NYSE:LFL) reports after market close with expectations of $0.42 per share. The company operates passenger services in Chile, Peru, Ecuador, Argentina, and Colombia. Air cargo and passenger service also operates a number of routes in North America, Europe, and Asia. The company is expected to complete its merger with Tam Airlines (NYSE:TAM) of Brazil in the first quarter of 2012, solidifying its lead in air services for the region.
Wednesday, February 1
Indonesia and Peru both release CPI numbers on Wednesday with expectations for slower inflationary pressures in both countries. Indonesia should see pricing pressures fall to around 3.5% (versus 3.79% previously) while Peru may see price increases fall to an annualized 4.4% (from 4.74% last reported).
India (NYSEArca:EPI) and Poland report PMI numbers, most likely both to the downside. India’s PMI may do relatively well, only falling to 54.0 from the last reading of 54.2 while Poland will most likely see more weakness from European austerity and a 45.5 measure against 48.8 previously.
Russia, Turkey, and Brazil all release manufacturing PMI numbers on Wednesday as well. Russia could be the standout as strong domestic demand and high oil prices drive the country’s growth. Brazil may return to growth with an reading above 50.0 versus last month’s 49.1 report. Turkey’s manufacturing PMI could slow to sub-50 on weak external demand and a slowdown in the country’s strong growth rate last year.
Russia will also make a decision on its refinance rate though no change is expected from the current 8 percent. Though inflationary pressures and unemployment are low compared to trend, strong domestic demand is driving growth without the aid of accommodative monetary policies.
NetQin Mobile (NYSE:NQ) reports after market close with estimates around $0.06 per share. The Chinese company is a software-as-a-service (SaaS) provider of consumer mobile internet services. ADR shares started trading in May of last year and have been volatile with a low of $3.46 (October) and a high of $11.90 (May).
Thursday, February 2
China’s manufacturing PMI will take the headlines on Thursday. Market consensus is for a decline to 49.6, a psychologically important drop from last month’s reading of 50.3, but a surprise to the upside is possible. The country reported stronger-than-expected GDP growth of 8.9% last quarter and has eased investor fears of a ‘hard’ landing to its economy.
Banco Santader Chile (NYSE:SAN) reports earnings before market open with expectations of $1.25 per share. The company provides commercial and retail services across approximately 500 branches and is majority controlled by Teatinos Siglo XXI Inversiones with 41.5% of shares.
Friday, February 3
Turkey and Colombia both report pricing pressures on the last day of the week. Turkey reports consumer and producer prices with both most likely coming out higher than the previous report. Producer prices, most likely around 13.5% on an annualized basis, are influencing consumer prices as cost pressures get past along to consumption. Consumer prices may have risen to a pace of 10.75% against the previous 10.45% reading.
Colombian producer prices may level off as upward pressure from domestic demand is moderated by cheaper imports due to a strengthening peso. Estimates are for a reading around 5.0% against last month’s 5.2% annualized gain.
Dr. Reddy’s Laboratories (NYSE:RDY) will report before the market opens on Friday. The Indian company is an integrated pharmaceutical provider focused on three segments: global generics, pharmaceutical services, and proprietary products. Generics accounted for approximately 71% of 2011 revenues with significant market share in the faster growing emerging markets. The company has been under pressure lately for promotional materials used in the U.S. but issued a press release on Saturday that the matter has been closed with the Food and Drug Administration (FDA).
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.