EM Preview for the Week Ahead

blog-icons-empreview emerging markets previewEM FX put in a mixed performance Friday, and capped off an overall mixed week.  Over that week, the best performers were IDR, TRY, and INR while the worst were BRL, MXN, and ARS.  US yields are recovering and likely to put renewed pressure on EM FX. 

Indonesia reports May CPI Monday, which is expected to rise 3.3% y/y vs. 3.4% in April.  If so, it would remain near the bottom of the 3-5% target range.  However, we think the weak rupiah will keep Bank Indonesia in tightening mode.  Next policy meeting is June 28, and another 25 bp hike is likely.

Turkey reports May CPI Monday, which is expected to rise 12.15% y/y vs. 10.85% in April.  Central Bank of Turkey meets Thursday and is expected to hike rates 25 bp to 16.75%.  However, the market is split.  Of the 10 analysts polled by Bloomberg, 5 see no hike, 1 sees a 50 bp hike, and 4 see a 100 bp hike.  Given renewed pressure on the lira, we think anything short of 100 bp would be a disaster.

The Philippines reports May CPI Tuesday, which is expected to rise 4.9% y/y vs. 4.5% in April.  If so, it would be a new high for this cycle and move further above the 2-4% target range.  Next policy meeting is June 21, and we think another 25 bp hike is likely.

Czech Republic reports April retail sales Tuesday, which are expected to rise 6.6% y/y vs. -1.8% in March.  It then reports April industrial and construction output along with trade on Wednesday.  For now, weakness in the eurozone and low inflation is likely to keep the central bank on hold.  Next policy meeting is June 27, and no change is likely then.

Hungary reports April retail sales Tuesday, which are expected to rise 7.5% y/y vs. 7.3% in March.  It then reports April IP on Wednesday, which is expected to rise 3.8% y/y vs. 1.9% in March.  May CPI will be reported Friday, which is expected to rise 2.6% y/y vs. 2.3% in April.  If so, inflation would still be in the lower half of the 2-4% target range.  Next policy meeting is June 19, and no change is likely then.

Taiwan reports May CPI Tuesday, which is expected to rise 2.1% y/y vs. 2.0% in April.  While the central bank does not have an explicit inflation target, low price pressures should allow it to remain on hold at its June quarterly policy meeting.  Taiwan reports May trade Friday, with exports expected to rise 12% y/y and imports by 6.2% y/y.

South Africa reports Q1 GDP Tuesday, which is expected to rise 1.8% y/y vs. 1.5% in Q4.  It then reports April manufacturing production Thursday, which is expected to rise 1.1% y/y vs. -1.3% in March.  For now, the economy is recovering and the SARB is likely to remain on hold as the rand remains vulnerable.  Next policy meeting is July 19, no change is likely then.

Brazil reports April IP Tuesday, which is expected to rise 7.8% y/y vs. 1.3% in March.  May IPCA inflation will be reported Friday, and is expected to rise 2.74% y/y vs. 2.78% in April.  COPOM left rates steady at its last meeting in May and markets are starting to price in a possible start to the tightening cycle at the June 20 meeting.

Colombia reports May CPI Tuesday, which is expected to rise 3.2% y/y vs. 3.1% in April.  If so, it would be near the middle of the 2-4% target range.  Next policy meeting is June 29, and we think a 25 bp cut to 4.0% then is possible.

Reserve Bank of India meets Wednesday and is expected to keep rates steady at 6.0%.  However, a small handful of analysts see a 25 bp hike to 6.25%.  CPI rose 4.6% y/y in April, as inflation remains in the upper half of the 2-6% target range.  As such, we see a small chance of a hawkish surprise.

National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%.  CPI rose 1.7% y/y in May, near the bottom of the 1.5-3.5% target range.  As such, we see the bank sticking with its forward guidance of no hikes through 2019.

Chile reports May trade Thursday.  It then reports May CPI Friday, which is expected to rise 2.0% y/y vs. 1.9% in April.  If so, it would be right at the bottom of the 2-4% target range.  The central bank signaled an end to the easing cycle, but low price pressures would allow it to restart rate hikes if the economy were to slow.  Next policy meeting is June 13, no change is expected then.

Mexico reports May CPI Thursday, which is expected to rise 4.46% y/y vs. 4.55% in April.  If so, it would be the lowest since December 2016 but still above the 2-4% target range.  Next policy meeting is June 21, and much will depend on how the peso trading as the July election nears.

Peru central bank meets Thursday and is expected to keep rates steady at 2.75%.  CPI rose 0.9% y/y in May, below the 1-3% target range.  As such, we see a small chance of a dovish surprise.

China reports May CPI, PPI, and trade Friday.  Both CPI and PPI inflation are expected to accelerate to 1.9% y/y and 3.9% y/y, respectively.  Exports are expected to rise 11.1% y/y and imports by 19.6% y/y.  For now, markets remain comfortable with the mainland economic outlook.