EM remains hostage to global trade tensions. Last week’s moves by the US to with regards to Japan, EU, Canada, and Mexico should only be viewed as a change in tactics. China is now the sole focus, but these other trade skirmishes are likely to flare again. We remain negative on EM within this environment.
Taiwan reports April export orders Monday, which are expected to contract -6.5% y/y vs. -9.0% in March. Q1 current account data will also be reported Monday. April IP will be reported Thursday, which is expected to contract -5.0% y/y vs. -9.9% in March. While the central bank not have an explicit inflation target, low price pressures and a soft economy should allow the central bank to keep rates steady at the next quarterly policy meeting in June.
Poland central bank releases minutes Monday. The bank remains in dovish mode, with Governor Glapinski saying it sees no hike through 2022. April industrial output and PPI will be reported Wednesday, with both expected to pick up from March. April construction output and real retail sales will be reported Thursday, with both expected to pick up from March.
Chile reports Q1 GDP Monday, with growth expected to slow to 1.8% y/y vs. 3.6% in Q4. CPI rose 2.0% y/y in April, right at the bottom of the 2-4% target range. With headwinds building on the economy, we believe the central bank is on hold for the time being. Next policy meeting is June 7, no change is expected then.
Bank of Israel meets Monday and is expected to keep rates steady at 0.25%. CPI rose 1.3% y/y in April, still near the bottom of the 1-3% target range. Yet the economy remains robust as GDP grew 5.2% annualized in Q1 vs. 3.1% expected.
Thailand reports Q1 GDP Tuesday, with growth expected at 2.8% y/y vs. 3.7% in Q4. The BOT recently delivered a dovish hold and cut its growth forecast for this year by a couple of ticks to 3.8% due largely to weaker exports. Consensus sees the next hike coming in 2020. We concur and see steady rates in 2019. Next policy meeting is June 26, no change is expected then.
Korea reports trade data for the first 20 days of May on Tuesday. The US-China trade war will impact the economy. The weaker won will help at the margin, but not by enough to offset the headwinds emanating from China. Next policy meeting is May 31, no change is expected then.
South Africa reports April CPI Wednesday, which is expected to remain steady at 4.5% y/y. If so, inflation would remain at the center of the 3-6% target range. The central bank meets Thursday and is expected to keep rates steady at 6.75%. With the economy weak, the bank would probably like to cut rates, but the vulnerable rand is likely to prevent that for now.
Mexico reports mid-May CPI Thursday, which is expected to rise 4.48% y/y vs. 4.38% in mid-April. Banco de Mexico just delivered a hawkish hold, giving no inkling of a potential rate cut. We think high inflation and a weak peso will likely prevent any easing until 2020. April trade and Q1 current account data will be reported Friday. Next policy meeting is June 27, no change is expected then.
Malaysia reports April CPI Friday, which is expected to rise 0.3% y/y vs. 0.2% in March. Bank Negara does not have an explicit inflation target, but low price pressures should allow it to ease policy further. Bank Negara just cut rates 25 bp to 3.0%, underscoring its growth concerns. Next policy meeting is July 9, and much will depend on the global backdrop.
Brazil reports mid-May IPCA inflation Friday, which is expected to rise 4.99% y/y vs. 4.71% in mid-April. If so, it would be the highest since mid-February 2017 and in the top of the 2.75-5.75% target range. While many are still looking for rate cuts in Brazil, we think high inflation and the weak real will prevent this. Next policy meeting is June 19, no change is expected then.