EM Preview for the Week Ahead

EM had another rough week, as weak data and warnings from the Fed and top investment professional hurt market sentiment.  Virtually every currency losing ground against the dollar, and the only exceptions were TRY, THB, and IDR.  Risk sentiment is likely to remain on the ropes this week, as investors will have to wait several weeks to gauge how reopening economies fare around the world.

AMERICAS

Chile reports Q1 GDP and current account data Monday.  The economy is expected to contract -0.1% y/y vs. -2.1% in Q4.  Central bank minutes will be released Friday.  At that meeting, the bank kept rates steady at its 0.5% “technical minimum” but said it would provide more stimulus if needed via QE.  The minutes may provide some clues on policy ahead of the next meeting June 16.

Mexico reports mid-May CPI Friday and is expected to rise 2.50% y/y vs. 2.08% in mid-April.  If so, inflation would be the highest since March and would suggest some pass-through from the weak peso is being seen.  Still, the focus is on boosting growth as Banco de Mexico just cut rates 50 bp to 5.5% last week and signaled further easing.  Next policy meeting is June 25 and another cut is expected then, if not sooner.

 

EUROPE/MIDDLE EAST/AFRICA

South Africa reports February manufacturing production Tuesday.  Production is expected to contract -2.0% y/y, same as January.  Retail sales will be reported Wednesday and are expected to rise 1.1% y/y vs. 1.2% in January.  South African Reserve Bank meets Thursday and is expected to cut rates 50 bp to 3.75%.  However, expectations are all over the place as some analysts see no cut as well as cuts ranging from 25-100 bp.

Russia reports Q1 GDP Tuesday.  The economy is expected to grow 1.8% y/y vs. 2.1% in Q4.  April IP will be reported Thursday and is expected to contract -10.0% y/y vs. +0.3% in March.  PPI will be reported Friday and is expected to fall -7.2% y/y and warns of deflationary risks ahead.  The central bank just cut rates 50 bp to 5.5% in April and signaled further easing was likely.  Next policy meeting is June 19 and another cut then is expected.

Poland reports April employment Wednesday.  Sold industrial output will be reported Thursday and is expected to contract -10.0% y/y vs. -2.3% in March.  Central bank minutes will also be released Thursday.  At that meeting, the bank cut rates 50 bp to 0.50% and announced QE.  The bank has since started asset purchases and the May policy meeting was delayed until May 28 to better gauge the impact.  Construction output and real retail sales will be reported Friday, with the former expected to contract -3.0% y/y and the latter by -19.5% y/y.

Turkey central bank meets Thursday and is expected to cut rates 50 bp to 8.25%.  A handful of analysts look for deeper 75 or 100 bp cuts.  CPI rose 10.94% y/y in April, the lowest since November but still well above the 3-7% target range.  The weak lira is likely to pose some inflationary risks but policymakers remain focused on boosting the economy.

 

ASIA

Singapore reports April trade data Monday.  NODX are expected to contract -5.0% y/y vs. +17.6% in March.  Singapore and Korea are the regional bellwethers and recent data suggest that a significant recovery in regional trade is unlikely near-term.  The next semiannual MAS policy meeting isn’t until October but we see risks of another intra-meeting move if the economic outlook worsens.

Thailand reports Q1 GDP Monday.  The economy is expected to contract -3.8% y/y vs. +1.6% in Q4.  Bank of Thailand meets Wednesday and is expected to cut rates 25 bp to 0.50%.  However, a small handful of analysts sees steady rates.  The bank cut rates 25 bp to 0.75% at an emergency meeting March 20 but kept rates steady at the next scheduled meeting March 25.  There were two dissents then in favor of a 25 bp cut.  CPI fell -3.0% y/y in April, the worst deflation since July 2009 and way below the 1-4% target range.

Bank Indonesia meets Tuesday and is expected to cut rates 25 bp to 4.25%.  However, a small handful of analysts sees steady rates.  The bank cut rates 25 bp to 4.5% in March but kept rates steady in April.  CPI rose 2.7% y/y in April, the lowest since December and near the bottom of the 2.5-4.5% target range.  The firm rupiah should also give Bank Indonesia confidence to continue cutting rates.

China sets it benchmark Loan Prime Rates Wednesday.  Both the 1- and 5-year rates are expected to be kept steady at 3.85%  and 4.65%, respectively.  Given the PBOC’s dovish bias and promise of more “powerful” easing measures, however, we would not rule out a drop in lending rates here.  April data show that production is starting to recover while consumption has not, so further easing is likely.

Taiwan reports April export orders and Q1 current account data Wednesday.  Orders are expected to contract -3.0% y/y vs. +4.3% in March. If so, orders will have fallen in three of the first four months this year, suggesting little relief until late 2020, if at all.  The central bank cut rates 25 bp to 1.125% in March.  Next quarterly policy meeting is June 18 and another cut then is likely.

Korea reports trade data for the first 20 days of May Thursday.  In the first 10 days of the month, exports plunged -46.3% y/y and imports by -37.2% y/y.  The Bank of Korea cut rates 50 bp to 0.75% in March but kept rates steady in April.  Next policy meeting is May 28 and another cut then is likely.