EM Preview for the Week Ahead

EM FX has gotten some traction lately, but we do not think it will last. While the US-Mexico trade tensions appear to have been addressed, the US-China situation seems likely to drag on into Q3. EM seems to be benefitting from the weak dollar, but the global backdrop remains concerning.

China will report money and new loan day for May this week. Both new loans and aggregate financing are expected to increase from April. It reported May trade data, with exports rising 1.1% y/y vs. -3.9% expected but exports contracting -8.5% y/y vs. -3.5% y/y expected. China reports May CPI and PPI Wednesday and are expected to rise 2.7% y/y and 0.6% y/y, respectively. May retail sales and IP will be reported Friday and are expected to rise 8.0% y/y and 5.4% y/y, respectively.

Taiwan reports trade data Monday. Exports are expected to contract -2.8% y/y and imports by -0.6% y/y. Downside risks to the economy are growing. While the central bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady this year. Next quarterly policy meeting is June 20, no change is expected then.

Czech Republic reports May CPI Tuesday, which is expected to rise 2.7% y/y vs. 2.8% in April. If so, inflation would remain in the 1-3% target range. Recent central bank comments suggest rates are on hold for the time being. Next policy meeting is June 26 and no change is expected then.

South Africa reports April manufacturing production Tuesday, which is expected to remain steady at 1.2% y/y. April retail sales will be reported Wednesday, which are expected to rise 1.2% y/y vs. 0.2% in March. The economy remains weak and we think the central bank is moving towards a rate cut in H2. Next policy meeting is July 18 and a 25 bp cut is possible then. Much will depend on how the rand is trading then.

Russia reports April trade Tuesday. The central bank then meets Friday and is expected to cut rates 25 bp to 7.5%. Even though inflation of 5.1% y/y in May remains above the 4% target, Governor Nabiullina said that a rate cut this week was possible.

Mexico reports April IP Tuesday, which is expected to contract -2.4% y/y vs. -0.1% in March. While the tariff risk has ended (for now), the economy has been slowing and a recession remains a distinct possibility. Yet Banco de Mexico cannot cut rates anytime soon due to the vulnerable peso. Next policy meeting is June 27, no change is expected then.

Turkey central bank meets Wednesday and is expected to keep policy steady. CPI rose 18.71% y/y in May, the lowest since August but still well above the 3-7% target range. If disinflation continues, the bank will be tempted to cut rates but we think this month is too soon. April current account data will be released Friday and is expected at -$1.5 bln.

India reports May CPI and April IP Wednesday. The former is expected to rise 3.08% y/y and the latter by 0.7% y/y. If so, inflation would remain in the bottom half of the 2-6% range. May WPI will be reported Friday, which is expected to rise 3.04% y/y vs. 3.07% in April. RBI just cut rates and signaled further easing is likely. Next policy meeting is August 7 and another 25 bp cut is likely then.

Brazil reports April retail sales Wednesday, which are expected to rise 2.5% y/y vs. -4.5% in March. The economy remains weak. Even though price pressures appear to be easing, we do not think COPOM will cut rates again. Next policy meeting is June 19, no change is expected then.

Peru central bank meets Thursday and is expected to keep rates steady at 2.75%. CPI rose 2.73% y/y in May, the highest since September2017 but still within the 1-3% target range. Given the sluggish economy and the drop in copper prices, we believe the central bank will keep rates steady this year.

Colombia reports April retail sales and manufacturing production Friday. The former is expected to rise 4.3% y/y and the latter by 2.3% y/y, both slowing from March. Given the sluggish economy, we believe the central bank will keep rates steady this year. Next policy meeting is June 21, no change is expected then.