Emerging Markets Week Ahead: Asset Recovery On Hold Near-Term

Between the World Cup, the approaching summer, rising geopolitical risk, and a generally weaker tone for risky assets in global markets, the recovery in EM assets may be placed on hold near-term. Still, we think the conditions are still there for an extension of the recent moves, though a new catalyst may be required. In the short-term, we favor Asia and Latin America over EMEA currencies given the fundamental fragilities for TRY and ZAR, the dovish tone by central banks in Hungary and Poland and, for the latter, the latest political scandal involving Governor Belka that may also weigh on assets.

Singapore reports May trade on Tuesday, with Non Oil Domestic Exports (NODX) expected to rise 0.5% y/y vs. 0.9% in April. The real sector data have been coming in a bit soft recently, and so we see steady policy from the MAS at the next policy meeting in October. For USD/SGD, support seen near 1.2500 and then 1.2450, resistance seen near 1.2600.

Russia reports Q1 GDP on Tuesday, with growth expected to remain steady at 0.9% y/y. It also reports May IP on Thursday (2.0% y/y consensus) followed by May retail sales on Friday (2.7% y/y consensus). On Monday, the central bank kept rates steady at 7.5%, as expected. Even though inflation remains high, the economy remains very weak and so the focus for policymakers is now on growth. For USD/RUB, support seen near 34.00, resistance seen near 35.00 and then 36.00.

The Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.0%. However, there is a small split. Of the 22 analysts polled by Bloomberg, 3 are looking for a 25 bp cut to 1.75%. We acknowledge a small risk of a dovish surprise as the economy remains weak and uncertainty remains high in the wake of the coup. For USD/THB, support seen near 32.20 and then 32.00, resistance seen near 32.50 and then 33.00.

South Africa reports May CPI on Wednesday, expected to rise 6.5% y/y vs. 6.1% in April. It reports Q1 current account at the same time, seen at -6.0% of GDP vs. -5.1% in Q4. Later that day, it reports April retail sales, expected to rise 1.7% y/y vs. 1.0% in April. The S&P downgrade on Friday was not a surprise to us, but underscores the weak fundamentals that haunt South Africa. High inflation, weak growth, high social tensions, and a widening current account gap are all likely to keep the rand underperforming. For USD/ZAR, support seen near 10.60 and then 10.40, resistance seen near 10.80 and then 11.00.

Brazil reports the second preview for June IGP-M wholesale inflation on Wednesday, expected at -0.59% m/m. If sustained, this would translate into a y/y rate of 6.4%, down from 7.8% in May and the lowest since February. Later that day, it reports mid-June IPCA inflation, expected to rise 6.35% y/y vs. 6.31% in mid-May. We think price pressures at the consumer level should soon turn lower to follow wholesale prices, and this should justify the decision to keep rates at 11% this month. For USD/BRL, support seen near 2.20, resistance seen near 2.25 and then 2.30.

Poland reports May IP on Wednesday, expected to rise 5.9% y/y vs. 5.4% in April. The central bank also releases minutes from its last meeting on Friday. The July meeting will be very important, but we suspect that these June minutes will help explain why the central bank has started to raise the possibility of a rate cut. On the other hand, the policy outlook has gotten cloudier after weekend revelations of potentially improper collusion between the central bank and the government. For EUR/PLN, support seen near 4.10, resistance seen near 4.15 and then 4.20.

The Philippines' central bank meets Thursday and is expected to keep rates steady at 3.5%. However, analysts are split. Of the 17 polled by Bloomberg, 12 see no move and 5 see a 25 bp hike to 3.75%. Inflation is picking up, but remains within the 3-5% target range. With the economy slowing, we think the central bank will take a wait-and-see approach for now. For USD/PHP, support seen near 43.50, resistance seen near 44.00 and then 44.50.

Taiwan reports May export orders Friday, expected to rise 7.5% y/y vs. 8.9% in April. Export growth has been improving, albeit modestly. As orders have gotten stronger, actual exports are likely to improve in H2. For USD/TWD, support seen near 30.00 and then 29.80, resistance seen near 30.20 and then 30.40.

On Friday, Mexico's central bank releases minutes from its last meeting when it surprised markets with a 50 bp cut to 3.0%. It said then that no further rates were warranted, but the minutes should give more insight into the decision. Mexico also reports April INEGI retail sales that day, expected at -1.3% y/y vs. +1.7% in March. ANTAD already reported sales for April at +2.4% y/y and for May at -0.2% y/y. Upcoming data are likely to come in weak, justifying the decision to cut. For USD/MXN, support seen near 13.00 and then 12.80, resistance seen near 13.15 and then 13.20.

Colombia's central bank meets Friday and is expected to hike rates 25 bp to 4.0%. Expectations are nearly unanimous, but we think there is a small risk of a dovish hold if the peso continues to gain. Ahead of the decision, we will see April retail sales (5.7% y/y consensus) and IP (-2.0% y/y consensus) on Monday, April trade (-$500 mln consensus) on Tuesday, and Q1 GDP (5.2% y/y consensus) on Thursday. For USD/COP, support seen near 1870 and then 1850, resistance seen near 1900 and then 1925.