EM Preview for the Week Ahead

EM assets are coming off of a good week, but storm clouds lie ahead.  The economic data last week for unequivocally bad, and this week is unlikely to bring much relief.  With risk-off sentiment picking up, we expect EM to come under pressure this week.

AMERICAS

Colombia central bank releases its minutes Monday.  At last week’s meeting, the bank cut rates 50 bp to 3.25%, as expected.  Colombia then reports April CPI Tuesday and is expected to rise 3.64% y/y vs. 3.86% in March.  If so, inflation would be the lowest since January and further within the 2-4% target range.  We expect easing to continue into H2.

Brazil reports April trade data Monday.  March IP will be reported Tuesday and is expected to contract -2.0% y/y vs. -0.4% in February.  COPOM then meets Wednesday and is expected to cut 50 bp to 3.25%.  However, a handful of analysts look for a 75 bp cut.  April IPCA inflation will be reported Friday and is expected to rise 2.48% y/y vs. 3.30% in March.  If so, inflation would be the lowest since August 2017 and below the bottom of the 2.5-5.5% target range.

Chile central bank meets Wednesday and is expected to keep rates steady at 0.50%.  April trade will be reported Thursday.  April CPI will be reported Friday and is expected to rise 3.4% y/y vs. 3.7% in March.  If so, inflation would be the lowest since December and further within the 2-4% target range.

Mexico reports April CPI Thursday and is expected to rise 2.14% y/y vs. 3.25% in March.  If so, inflation would be the lowest since December 2015 and nearing the bottom of the 2-4% target range.  Next Banco de Mexico meeting is May 14 but it has already cut intra-meeting and so we can’t rule out another cut at any time.

Peru central bank meets Thursday and is expected to keep rates steady at 0.25%.  CPI rose 1.72% y/y in April vs. 1.82% in March.  This was the lowest since September 2018 and moves into the lower half of the 1-3% target range.  Yet interest rates are at the lower bound.  Further easing will have to take the form of more unconventional measures and we do not think policymaker are ready yet.

 

EUROPE/MIDDLE EAST/AFRICA

Turkey reports April CPI Monday and is expected to rise 10.80% y/y vs. 11.86% in March.  If so, inflation would be the lowest since November but still well above the 3-7% target range.  In its quarterly inflation report last week, the bank cut its inflation forecast from 8.2% to 7.4% for this year and penciled in a further decline to 5.4% in 2021.  Next policy meeting is May 21 and we think further rate cuts are a given at this point despite the continued pressure on the currency.

Czech Republic reports March retail sales Wednesday, which are expected to contract -12.0% y/y vs. +3.6% in February.  Czech National Bank meets Thursday and is expected to cut rates 50 bp to 0.50%.  Ahead of the decision, March construction and industrial output as well as trade data will be reported.

Hungary reports March retail sales Wednesday, which are expected to rise 1.3% y/y vs. 11.3% in February.  March IP will be reported Thursday and is expected to contract -6.7% y/y WDA vs. +1.7% in February.  April CPI will be reported Friday and is expected to rise 2.7% y/y vs. 3.9% in March.  If so, inflation would be the lowest since January 2019 and nearing the bottom of the 2-4% target range.  The bank kept rates steady last week but announced it will begin its bond purchases this week, focusing first on maturities around ten years.  March trade will also be reported Friday.

Central Bank of Russia releases its quarterly inflation report Wednesday.  Governor Nabiullina has signaled further easing lies ahead, but this report should provide some clues to the likely pace of rate cuts in the pipeline.  Next policy meeting is June 19 and another cut then is expected. Russia then reports April CPI Thursday and is expected to rise 3.1% y/y vs. 2.5% in March.  If so, inflation would accelerate for the second straight months and move closer to the 4% target.

 

ASIA

Malaysia reports March trade data Monday.  Exports are expected to contract -8.3% y/y and imports by -5.0% y/y.  Bank Negara then meets Tuesday and is expected to cut rates 50 bp to 2.0%.  However, a small handful of analysts see either no cut or a 25 bp cut.  March IP and manufacturing sales will be reported Friday, with IP expected to contract -5.0% y/y.

Indonesia reports April CPI Monday and is expected to rise 2.77% y/y vs. 2.96% in March.  If so, inflation would be the lowest since January and further towards the bottom of the 2.5-3.5% target range.  It then reports Q1 GDP Tuesday and is expected to grow 4.00% y/y vs. 4.97% in Q4.  Next central bank policy meeting is May 19 and another cut then is likely.

Hong Kong reports Q1 GDP Monday and is expected to contract -6.4% y/y vs. -2.9% in Q4.  March retail sales will be reported Tuesday and are expected to contract -47.5% y/y in volume terms.  Despite the weak economic outlook, investment inflows have been attracted by the relatively high local interest rates.  The HKMA has had to intervene as a result, and the increase in local liquidity should drive down local interest rates and eventually discourage inflows.  But we’re not there yet.

The Philippines reports April CPI Tuesday and is expected to rise 2.1% y/y vs. 2.5% in March.  If so, inflation would be the lowest since November and nearing the bottom of the 2-4% target range.  March trade data will be reported Wednesday, with exports expected to contract -4.0% y/y and imports by -10.0% y/y.  Q1 GDP will be reported Thursday, with growth expected to slow to 2.7% y/y from 6.4% in Q4.  The economy is weakening and so further stimulus is likely.  Next central bank policy meeting is June 25 and another rate cut is expected then.

Thailand reports April CPI Tuesday and is expected to fall -1.2% y/y vs. -0.54% in March.  If so, deflation would be the worst since August 2015 and further below the 1-4% target range.  Next Bank of Thailand policy meeting is May 20 and another rate cut then seems likely.

Caixin reports April China services and composite PMIs Thursday.  April trade will also be reported Thursday, with exports expected to contract -11.1% y/y and imports by -10.0% y/y.  The economy continues to face headwinds and so further easing measures are likely.  Foreign reserves will be reported Friday and are expected to ease to $3.055 trln form $3.060 in March.