EM Preview for the Week Ahead

EM FX saw broad-based weakness last week. The only exceptions were TRY (+3.5%) and CNY (+0.1%). The former’s gains were driven in large part by official efforts to stabilize it ahead of Turkish local elections this weekend. These gains are artificial and not sustainable, in our view. The global backdrop remains challenging for EM, as global growth concerns appear to be taking precedent over the favorable liquidity story.

Korea reports March trade data Monday. Exports are expected to contract -6.9% y/y and imports by -5.2% y/y. March CPI will be reported Tuesday, which is expected to rise 0.7% y/y vs. 0.5% in February. If so, inflation would remain well below the 2% target. Low price pressures should allow BOK to keep rates steady for most of this year. Next policy meeting is April 18, and no change is expected then. February current account data will be reported Thursday.

Caixin reports its China manufacturing PMI for March Monday, which is expected to rise to 50.0 from 49.9 in February. Over the weekend, China reported official manufacturing PMI at 50.5 vs. 49.6 expected and 49.2 in February. It appears that the stimulus measures taken so far are stabilizing the economy, but the ongoing trade war remans a headwind. Vice Premier Liu travels to Washington for another round of talks that begin Wednesday.

Thailand reports March CPI Monday, which is expected to rise 0.93% y/y vs. 0.73% in February. If so, inflation would remain below the 1-4% target range. Low price pressures should allow BOT to keep rates steady for most of this year. Next policy meeting is May 8, and no change is expected then. Political risks are rising after the elections, as opposition party Pheu Thai claims to have formed a seven-party coalition that would hold a majority in parliament.

Brazil reports March trade data Monday. February IP will be reported Tuesday and is expected to rise 2.3% y/y vs. -2.6% in January. The economy remains weak as confidence has yet to recover. IPCA inflation rose 4.18% y/y in mid-March, the highest since October but still well within the 2.75-5.75% target range. Next policy meeting is May 8, and no change is expected then.

Turkey reports March CPI Wednesday, which is expected to rise 19.63% y/y vs. 19.67% in February. We see upside risks due to the plunging lira. Last week, the bank suspended one-week repo auctions at 24%, which pushed the average cost of funds up to 25.5%. Local elections are being held Sunday, which is why the government is so keen on keeping the lira stable. Next policy meeting is April 25. If the lira comes under greater pressure, more measures to support it may be announced.

National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. March CPI rose 1.7% y/y vs. 1.6% expected, which puts it near the bottom of the 1.5-3.5% target range. Low price pressures and headwinds to growth should allow the central bank to keep rates steady into 2020.

Malaysia reports February trade Thursday. Exports are expected to rise 4.0% y/y and imports by 2.8% y/y (in ringgit terms). The economy remains at risk and so the central bank is unlikely to hike rates this year. Next policy meeting is May 7, and no change is expected then.

Reserve Bank of India meets Thursday and is expected to cut rates 25 bp. On top of already announced fiscal stimulus, the RBI is doing its part to help Modi ahead of the April-May elections. CPI rose 2.6% y/y in February, which is in the bottom half of the 2-6% target range. As such, another cut seems justified.

Philippines reports March CPI Friday and is expected to rise 3.4% y/y vs. 3.8% in February. If so, this would be the lowest reading since January 2018 and would move further within the 2-4% target range. Next policy meeting is May 9. New central bank Governor Diakno is itching to cut rates and we think falling inflation will give him the opportunity to do so this month.

Czech Republic reports February retail sales Friday, which are expected to rise 2.3% y/y vs. 1.5% in January. CPI rose 2.7% y/y in February, which is in the upper half of the 1-3% target range. However, the focus is on maintaining growth. Next policy meeting is May 2, and no change is expected then.

Hungary reports February retail sales and IP Friday. The former is expected to rise 5.4% y/y and the latter by 5.1% y/y WDA. CPI rose 3.1% y/y in February, which is in the upper half of the 2-4% target range. Here too, the focus is on maintaining growth. Next policy meeting is April 30, and no change is expected then.

Colombia reports March CPI Friday, which is expected to rise 3.08% y/y vs. 3.01% in February. If so, inflation would remain near the 3% target and well within the 2-4% target range. Next policy meeting is April 26, and no change is expected then. Relations with the US appear to be deteriorating, as President Trump criticized President Duque for not doing enough to curb drug flows.