Emerging markets currencies are somewhat directionless at the moment, caught between an unclear trend for the dollar and oil prices in a broad yet volatile range since the start of the month. Moreover, the uncertainty about the timing of the first Fed hike and festering risks in Europe (Greece and the rise of the anti-establishment parties in Spain) will continue to detract from risk appetite. We see EM trading with a mildly negative tone in the week ahead, though we don’t see many idiosyncratic risk events in the near term.
Data in Brazil will be scrutinized carefully following the terrible employment data on Friday, and could lead to a re-assessment of the central bank’s conviction about hiking rates. At least in the short term, we don’t foresee any major fallout from the results of the Polish elections, which saw the defeated the incumbent president.
Israel's central bank meets Monday and is expected to keep rates steady at 0.10%. However, the market is split. Of the 21 analysts polled by Bloomberg, 15 see no change and 6 see a 10 bp cut to 0%. With rates nearing the zero bound, the central bank will have to resort for unconventional measures if more stimulus is needed. For now, the weak shekel will be relied upon as the main source of stimulus.
Mexico reports April trade and Q1 current account on Monday. The external accounts should pose no problems for Mexico, but growth is a concern. INEGI retail sales for March will be reported Tuesday. ANTAD sales were already reported at 5.2% y/y in March and 4.9% in April, pointing to upside risk for INEGI. The government last week cut its 2015 growth forecasts to 2.2-3.2% vs. 3.2-4.2% previously. The original forecast was 3.7% and had been cut once already. The government’s revision comes two days after Bank of Mexico Governor Carstens cut the central bank's growth forecast for the second time in three months.
Singapore reports April IP Tuesday, expected at -3.4% y/y vs. -5.5% in March. PMI fell to 49.4 in April, the fifth straight month below 50 and the lowest since February 2013. The economy remains soft, but the MAS declined to ease policy at its April policy meeting. We wouldn’t rule out a move at the next meeting in October, but much will depend on the data. CPI has fallen y/y for five straight months through March, but low base effects in H2 should see the y/y rate move back into positive territory.
South Africa reports Q1 GDP and unemployment Tuesday. Growth is expected at 2.1% y/y (1.8% SAAR), while unemployment is expected at 25.0% vs. 24.3% in Q4. With the economy still sluggish, there has been little improvement in the labor market in recent quarters. South Africa reports April money and loans, budget, and trade data Friday. The SARB was surprisingly hawkish at last week’s meeting, with the vote 4-2 in favor of steady rates. 2 dissents wanted a 25 bp hike to 6%.
Hungary's central bank meets Tuesday and is expected to cut rates 15 bp to 1.65%. We think the easing cycle is nearing an end, with another 15 bp cut to 1.50% seen next month and then a pause. With deflation likely to ease in H2 as low base effects kick in, and with the real economy fairly robust, the central bank will likely remain on hold at 1.5% to see how the outlook develops.
Brazil reports April current account and FDI data Tuesday. May IGP-M wholesale inflation and April PPI will be reported Thursday. Q1 GDP and April consolidated budget data will be reported Friday. Based on the monthly numbers, GDP is expected to contract -2% y/y. Monetary and fiscal tightening will only make things worse for the budget data. April tax collections were weaker than expected, pointing to heightened risk from the consolidated budget readings.
The Philippines reports Q1 GDP Thursday, expected to rise 6.6% y/y vs. 6.9% in Q4. The economy remains robust, and with rising inflation risks we see the central bank on hold. There are upside risks to food prices given the El Nino weather pattern that’s developing, which typically leads to lower than normal rainfall in Asia.
Korea reports April IP Friday. PMI has been back below 50 for two straight months and the April reading of 48.8 is the lowest since September 2014. The firm won is a growing concern, as the JPY/KRW cross is again flirting with the 9 level. If current trends continue, we think the BOK could cut rates at its next meeting June 11. Last move was a 25 bp cut to 1.75% back in March. Since then, the economic outlook has softened and the won has strengthened.
Turkey reports April trade data Friday. Exports have been slowing, but so too have imports and so the trade and current account balances have been improving. But with oil prices rising, the best numbers may be behind us. The central bank left rates steady at its meeting last week, which was the sensible thing to do given inflation and currency risks. Next big hurdle is the June elections, with tensions likely to rise ahead of time.
India reports Q1 GDP Friday, expected to rise 7.1% y/y vs. 7.5% in Q4. The RBI is in a cautious easing cycle, and should be able to continue since price pressures are still falling. WPI has fallen y/y for six straight months, and has dragged CPI inflation lower as well. The upcoming monsoon season is a concern given a risk of the El Nino effect (lower than usual rains in Asia) this year. This argues for some caution on the part of the RBI. So too does the recent delay in congress of some structural reforms.