EM ended last week under pressure. With two potentially disruptive events (FOMC meeting and Brexit vote) still in play, we think that EM softness should carry over into this week.
Markets remain jittery about the June 23 Brexit vote, as a vote to leave would be very negative for risk assets such as EM. No action is expected at the FOMC meeting Wednesday. However, we think July remains very much in play and the FOMC statement should help keep that notion alive.
China reports May IP, retail sales, and fixed asset investment Monday. IP is expected to rise 6.0% y/y, while retail sales are expected to rise 10.1% y/y. MSCI is expected to announce Tuesday whether China A-shares will be included in its indexes, and it will be a close call.
India reports May CPI Monday, which is expected to rise 5.6% y/y vs. 5.4% in April. It then reports May WPI Tuesday, which is expected to rise 0.5% y/y vs. 0.3% in April. While inflation is still within the 2-6% target range, it is nearing the top end of that band. WPI has moved back into positive y/y territory in April, and points to rising inflation risks. RBI kept rates steady last week, and we see rates on hold until the inflation trajectory improves. The central bank next meets August 9, no change expected then.
Poland reports April trade and current account Monday. It then reports May industrial (4.6% y/y expected) and construction (-9.8% y/y expected) output, PPI (-0.9% y/y expected), and real retail sales (5.6% y/y expected) Friday. The economy remains fairly robust even though deflation risks persist. Next policy meeting is July 6, no change expected then.
South Africa reports Q1 current account Tuesday, which is expected to narrow to -4.1% of GDP from -5.1% in Q4. However, we note that the trade deficit widened slightly in Q1, and so we see upside risks to the current account gap. South Africa reports April retail sales Wednesday, which are expected to rise 2.5% y/y vs. 2.8% in March. Next policy meeting is July 21, and we think it’s too early to make a call now.
Brazil reports April retail sales Tuesday, which are expected at -7.3% y/y vs. -5.7% in March. It then reports monthly GDP proxy for April Wednesday, which is expected at -4.5% y/y vs. -6.3% in March. COPOM minutes will be released Thursday. Those minutes won’t be too important, as that was the last meeting under outgoing Tombini. Incoming Goldfajn holds his first meeting July 20.
Indonesia reports May trade Wednesday. Exports are expected at -7.5% y/y and imports at -4.1% y/y. Bank Indonesia then meets Thursday and is expected to keep rates steady at 6.75%. A small handful looks for a 25 bp cut to 6.5%. We think a dovish surprise is possible, but favor a cut at the August 19 meeting, when the new policy rate goes into effect.
Malaysia reports May CPI Wednesday, which is expected to rise 2.0% y/y vs. 2.1% in April. Even though Bank Malaysia has no formal inflation target, easing price pressures should give the bank leeway to cut rates in H2 if the slowdown deepens. Next policy meeting is July 13, no change expected then.
Singapore reports April retail sales Wednesday, which are expected to rise 6.2% y/y vs. 5.1% in March. Singapore then reports May trade Friday, with NODX expected at -0.5% y/y vs. -7.9% in April. Real sector data have been mixed recently.
Israel reports May CPI Wednesday, which is expected to remain steady at -0.9% y/y. Deflation persists, and this is well below the 1-3% target range. For now, the central bank remains on hold, as it is hesitant to use unconventional measures. Next policy meeting is June 27, no change expected then. It then reports Q1 GDP and current account Thursday.
Colombia reports April retail sales and IP. The former is expected to rise 3.5% y/y, while the latter is expected to rise 6.3% y/y. The economy is fairly robust despite the rate hikes already seen. CPI rose 8.2% y/y in May, a cycle high and further above the 2-4% target range. The central bank next meets June 22 and is expected to deliver another 25 bp hike to 7.5%.
Chile’s central bank meets Thursday and is expected to keep rates steady at 3.5%. CPI rose 4.2% y/y in May, slightly above the 2-4% target range but falling. As such, we see the central bank on hold, with risks of an easing cycle if the economy remains sluggish.
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