EM Preview for the Week Ahead

We think the global backdrop remains very negative for EM. Rising tariffs pose significant risks to global growth and trade. We expect both China and Mexico to retaliate further in the coming days. At this point, a potentially more dovish Fed and ECB (amongst many others) is simply not enough to help EM get any traction.

Turkey reports May CPI Monday, which is expected to rise 19.25% y/y vs. 19.50% in April. If so, this would be the fourth straight month of deceleration. While inflation remains well above the 3-7% target range, there are no signs of official concern. Next policy meeting is June 12, no change is expected then.

Chile reports April retail sales Monday, which are expected to contract -0.6% y/y vs. +0.7% in March. The central bank meets Friday and is expected to keep rates steady at 3.0%. Ahead of the decision, May CPI and trade will be reported that same day, with inflation expected to rise to 2.2% y/y from 2.0% in April. If so, it would be the highest since December but still near the bottom of the 2-4% target range.

Brazil reports May trade Monday. April IP will be reported Tuesday, which is expected to contract -2.6% y/y vs. -6.1% in March. May IPCA inflation will be reported Friday, which is expected at 4.72% y/y vs. 4.94% in May. If so, this would be the first month of deceleration since December. Markets continue to push out tightening expectations further into 2020. Next COPOM meeting is June 19, no change is expected then.

Korea reports May CPI Tuesday, which is expected to rise 0.8% y/y vs. 0.6% in April. If so, inflation would remain well below the 2% target. Bank of Korea just left rates steady last week at 1.75% and indicated it is in no hurry to hike rates again. Next policy meeting is July 17, no change is expected then. May manufacturing PMI came in at 48.4, moving back below the key 50 level.

Thailand reports May CPI Tuesday, which is expected to rise 0.97% y/y vs. 1.23% in April. If so, inflation would move back below the 1-4% target range. Low price pressures and growing headwinds on the economy should keep BOT on hold this year. Next policy meeting is June 26, no change is expected then.

Poland reports May CPI Tuesday, which is expected to rise 2.4% y/y vs. 2.2% in April. If so, inflation would be the highest since November 2017 but still well within the 1.5-3.5% target range. The central bank meets Wednesday and is expected to keep rates steady at 1.5%. Governor Glapinski has said rates are unlikely to go up during his term, which ends in 2022. Markets do not believe him, as consensus sees the first hike by Q3 2020.

South Africa reports Q1 GDP Tuesday, with growth expected to slow to 0.7% y/y vs. 1.1% in Q4. If so, this would be the second straight quarter of deceleration. Q1 current account data will be reported Thursday, with the deficit expected to widen to -3.2% of GDP from -2.2% in Q4. Next policy meeting is July 18, no change is expected then. However, we think a rate cut is getting more likely later in H2.

Philippines reports May CPI Wednesday, which is expected to rise 2.9% y/y vs. 3.0% in April. If so, inflation would be the lowest since December 2017 and in the lower half of the 2-4% target range. Central bank Governor Diokno promised more easing ahead and we believe him. Next policy meeting is June 20, and another 25 bp cut to 4.25% is likely then.

Czech Republic reports April retail sales Wednesday, which are expected to rise 3.5% y/y vs. 2.7% in March. It then reports trade, construction and industrial output Thursday. The economy is showing signs of slowing, which led the central bank to adopt a neutral bias recently. Next policy meeting is June 26, no change is expected then.

Hungary reports April retail sales Wednesday, which are expected to rise 6.3% y/y vs. 5.9% in March. It then reports IP Thursday, which is expected to rise 6.8% y/y WDA vs. 8.0% in March. May CPI will be reported Friday, which is expected to remain steady at 3.9% y/y. If so, inflation would remain near the top of the 2-4% target range. The central bank just left policy steady but promised a policy review at the June 25 meeting, when new staff forecasts will be seen.

Taiwan reports May CPI Wednesday, which is expected to rise 0.84% y/y vs. 0.66% in April. While the central bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady this year.   Next policy meeting is June 20, no change is expected then.

Colombia reports May CPI Wednesday, which is expected to rise 3.29% y/y vs. 3.25% in April. If so, inflation would remain well within the 2-4% target range. The central bank has signaled that rates are on hold for the time being due to growing headwinds on the economy. Next policy meeting is June 21, no change is expected then.

Reserve Bank of India meets Thursday and is expected to cut rates 25 bp. CPI rose 2.9% y/y in April, which was firmly in the lower half of the 2-6% target range. Q1 GDP growth came in much weaker than expected at 5.8% y/y, the fourth straight quarter of deceleration and the slowest since Q1 2014. We think the RBI will be under pressure to deliver more stimulus.

Russia reports May CPI Friday, which is expected to rise 5.1% y/y vs. 5.2% in April. If so, inflation would remain above the 4% target, but it would be the second straight month of deceleration. Governor Nabiullina recently reiterated that rates could be cut in Q2 or Q3. Next policy meeting is June 14, and a 25 bp cut is expected then. If the ruble remains under pressure, we see potential for no cut then in favor of one in Q3.

Mexico reports May CPI Friday, which is expected to rise 4.37% y/y vs. 4.41% in April. With the peso coming under greater pressure and tariffs pushing local prices up, any notions of easing have been put to bed. As if there weren’t enough things to worry, Banxico now must grapple with the stagflationary risks from the US tariffs. Next policy meeting is June 27, no change is expected then.