EM Preview for the Week Ahead

EM FX remains vulnerable to ongoing global trade tensions. It may also suffer from the recalibration of market expectations regarding Fed policy. We remain negative on EM near-term until the outlook for both of these major drivers becomes clearer.

China reports June money and loan data sometime this week. It reports June CPI and PPI Wednesday, which are expected to rise 2.7% y/y and 0.3% y/y, respectively. June trade will be reported Friday, with exports expected to contract -0.6% y/y and imports by -4.6% y/y.

Czech Republic reports May construction and industrial output and trade data Monday. May retail sales will be reported Tuesday, which are expected to rise 3.8% y/y vs. 4.8% in April. It then reports June CPI Thursday, which is expected to rise 2.7% y/y vs. 2.9% in May. If so, inflation would move away from the top of the 1-3% target band.

National Bank of Poland releases its quarterly inflation report. Despite heightened inflation pressures, the central bank has doubled down on its pledge to keep rates steady through 2021. This report should lay out the bank’s line of thinking, but we are not convinced yet and believe that some tightening will be needed before the end of 2021.

Taiwan reports June trade data Monday. Exports are expected to contract -4.4% y/y and imports by -1.5% y/y. Exports orders suggest little relief for trade over the next six months. Indeed, existing US tariffs on China will continue to be a headwind to regional trade and growth.

Chile reports June CPI and trade data Monday. Inflation is expected to ease to 2.2% y/y from 2.3% in May. If so, inflation would closer to the bottom of the 2-4% target band. Next policy meeting is July 18 and rates are likely to be kept steady at 2.5%. While further easing is possible after the surprise 50 bp cut, we think this month may be too soon.

Bank of Israel meets Monday and is expected to keep rates steady at 0.25%. CPI rose 1.5% y/y in May, the highest since December 2013 but still in the bottom half of the 1-3% target range. We think low price pressures will keep the bank on hold in H2. June trade will be reported Thursday.

Bank Negara meets Tuesday and is expected to keep rates steady at 3.0%. CPI rose only 0.2% y/y in May. While the central bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady this year. Malaysia reports May IP Friday.

Hungary reports June CPI Tuesday, which is expected to rise 3.7% y/y vs. 3.9% in May. If so, inflation would move away from the top of the 2-4% target band. Next policy meeting is July 23 and rates are likely to be kept steady at 0.9%. Central bank minutes will be released Wednesday and could provide clues to the bank’s next move.

Mexico reports June CPI Tuesday, which is expected to rise 3.95% y/y vs. 4.28% in May. If so, inflation would move within the 2-4% target band. Next policy meeting is August 15 and rates are likely to be kept steady at 2.5%. Banco de Mexico releases its minutes Thursday. May IP will be reported Friday, which is expected to contract -1.5% y/y vs. -2.9% in April.

Brazil reports June IPCA inflation Wednesday, which is expected to rise 3.34% y/y vs. 4.66% in May. If so, inflation would move into the bottom half of the 2.75-5.75% target band. Next COPOM meeting is July 31 and rates are likely to be kept steady at 6.5% due to lack of progress in passing pension reforms. However, we see rising odds of a dovish surprise then. May retail sales will be reported Thursday, which are expected to rise 1.3% y/y vs. 1.7% in April.

Turkey reports May current account data Thursday. May IP will be reported Friday. However, data are secondary after the shock firing of central bank Governor Murat Cetinkaya over the weekend. His crime? Not cutting rates. According to President Erdogan’s worldview, high interest rates cause high inflation. Deputy Governor Murat Uysal was named as the replacement, though we all know who really controls monetary policy now.

South Africa reports May manufacturing production Thursday, which is expected to rise 1.4% y/y vs. 4.6% in April. The economy remains sluggish, which has markets looking for the start of an easing cycle in H2. Next policy meeting is July 18 and rates are likely to be kept steady at 6.75%. However, we see risks of a dovish surprise then.

Peru central bank meets Thursday and is expected to keep rates steady at 2.75%. CPI rose 2.3% y/y in June, near the center of the 1-3% target range. Low price pressures and a sluggish economy should allow the bank to keep rates steady this year.

India reports June CPI and May IP Friday. The former is expected to rise 3.2% y/y and the latter by 3.1% y/y. If so, inflation would remain in the bottom half of the 2-6% target range. Given the weak economy, further easing seems likely. Next policy meeting is August 7 and another 25 bp cut seems likely.