(from my colleague Dr. Win Thin)

EM assets for the most part fared well last week, and positive sentiment should carry over into this week.  China reported January foreign reserves over the weekend, and they fell less than expected to $3.231 bln. China markets are closed this week for the New Year holiday. While there should be little risk of negative headlines from the mainland, markets should watch how CNH trades in the offshore markets that are open.  

Oil prices should also be regarded as an important factor behind general market sentiment. Overall, we think the current bounce could be extended, but we still believe the medium-term bear market for EM remains intact.

Divergences within EM should continue to be seen. Brazil is closed for the first half of the week for Carnival. When markets reopen, investors will have to grapple with deteriorating fundamentals and a dysfunctional political backdrop. Ukraine is facing heightened political risk after the Economy Minister abruptly resigned. On the other hand, Argentina is making progress in dealing quickly with the debt holdouts, reaching agreements with two of the six largest remaining groups. 

Czech Republic reported disappointing December industrial (0.7 vs 5.9% y/y consensus). It reported a small trade surplus rather than the expected deficit. It will report January CPI on Friday, and is expected to rise 0.5% y/y vs. 0.1% in December. Despite a firm economy, the central bank has tilted more dovish, saying that negative rates were “seriously” discussed at last week’s meeting.It also extended its forward guidance on maintaining current policies to H1 2017 from H2 2016 previously. 

Hungary also reported a better December trade balance (HUF643 mln vs consensus of HUF340 mln). Central bank minutes will be released Wednesday. January CPI will be reported Thursday, and is expected to rise 1.2% y/y vs. 0.9% in December. Hungary reports Q4 GDP Friday, and is expected to rise 2.5% y/y vs. 2.4% in Q3. Despite rising inflation and a firm economy, the central bank retains a dovish tilt. The next policy meeting is February 23, no action is seen then.However, officials have raised the possibility of further easing if the outlook worsens.

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