Key events in EMEA next week

The short week ahead will be packed with data. February economic activity releases include retail sales and industrial production. In retail, we expect further weakness amid a third wave of Covid-19. Industrial production will rebound markedly as car manufacturers went back to work after the supply-related issues in January. Along with the expected strong industrial production, we see the Hungarian trade balance surplus expanding significantly. After the government announcement that this year’s deficit target needs to move 1ppt higher to 7.5% of GDP, we expect pretty bad March data on the budget balance which led decision makers to that change. The most important data of all will be the March inflation readings. Fuel will push the headline reading to 3.7% YoY, while core elements will show some softening, moving the core CPI down to 3.9% YoY. From here, the direction of travel will be up.

On Monday, the Finance Ministry will announce monthly FX purchases for April, which are likely to exceed the March level of $2.0bn, as oil prices pushed higher. This will most likely be neutral for the rouble but will serve as a reminder to the market of ‘oil neutrality’ and exposure to capita account risks.

March inflation on Tuesday may still stay at the February level of 5.7% year-on-year, but the chances for that are declining as the weekly data comes in. March readings north of 5.7% will put further upward pressure on our base case of two 25bp rate hikes in April and July.

The 1Q21 balance of payments, to be reported on Friday, will be a gauge of fundamental support to the rouble. We expect a current account surplus of US$20bn, down from the initial expectations of $25bn on higher than expected import growth and lower than expected export volumes. The capital account remains the least predictable factor to watch, as in addition to portfolio outflows for OFZ, which reached a monthly rate of around $1bn in the last couple of months, corporates and households have restarted the accumulation of foreign assets at a rate of $4-8bn per month, which is a more important constraint to the rouble's appreciation than the foreign policy themes that the market has been following recently.

March inflation will likely keep the annual figure on an uptrend, with a further increase to 16.3% (1.1% MoM change) from 15.6% a month ago, driven by the impact of exchange rate developments and base effects from last year despite the decision to put a ceiling on TRY gasoline prices.