Preview: Emerging Markets

(from my colleague Dr. Win Thin)

EM FX closed last week on
a firm note, as the stronger than expected US jobs gain was mitigated by lower
than expected average hourly earnings.  Still, we believe that global
liquidity conditions will continue to move against EM, as the Fed continues
tightening and others join in.  This week, BOC may be the first of the
others to hike rates.
Meanwhile, EM inflation readings this week
are expected to remain low, underscoring that EM monetary policy is unlikely to
be tightened anytime soon.  That should lead to narrower interest rate
differentials between DM and EM, which in turn should keep downward pressure on
EM FX.
China reports June CPI and PPI Monday.  The former is expected to rise 1.6% y/y and the
latter by 5.5% y/y.  New loan and money supply data will be reported
during the week, but no data has been set.  June trade will be reported
Thursday, with exports expected to rise 9.0% y/y and imports by 14.0% y/y.
Turkey reports May IP Monday, which is
expected to rise 5.0% y/y vs. 6.7% in April.
 It then reports May current account data Thursday, with the
deficit expected at -$5 bln.  If so, the 12-month total would widen to
-$35.1 bln, the largest since October 2015.  The external accounts are
worsening just as global liquidity is tightening, which should put downward
pressure on the lira.
Bank of Israel meets Monday and is
expected to keep rates steady at 0.10%.

 Israel then reports June CPI Friday, which is expected to rise 0.3% y/y
vs. 0.8% in May.  If so, that would be the lowest rate since January and
further below the 1-3% target range.  For now, the preferred policy lever
is a weaker shekel.  
Hungary reports June CPI Tuesday, which is
expected to rise 1.9% y/y vs. 2.1% in May.
 If so, that would be the lowest rate since December and back
below the 2-4% target range.  No wonder the central bank was comfortable
easing again at its June meeting.  Next policy meeting is July 18, no
changes expected then.
South Africa reports May manufacturing
production Tuesday, which is expected to contract -3.3% y/y vs. -4.1% in April.
 The economy remains very weak, but inflation
has not fallen enough to warrant rate cuts in Q3.  Rather, we see the
first cut likely in Q4.  Next SARB meeting is July 20, no change expected
then.
Mexico reports June ANTAD retail sales
Tuesday.  
It then reports May IP
Wednesday, which is expected to rise 0.3% y/y vs. -4.4% in April.  The
real economy remains sluggish, while price pressures appear to be topping out.
 Whilst an easing cycle seems warranted, some central bank officials
believe that it must keep pace with Fed hikes so that the interest rate
differential is maintained. Next policy meeting is August 10, no change is
expected then.
Malaysia reports May IP Wednesday, which
is expected to rise 4.4% y/y vs. 4.2% in April.
 Bank Negara then meets Thursday and is expected
to keep rates steady at 3.0%.  Inflation eased to 3.9% y/y in May, the
lowest since January.  While the central bank does not have an explicit
inflation target, falling price pressures should allow it to remain on hold in
H2 2017.
Singapore reports May retail sales
Wednesday, which are expected to rise 2.0% y/y vs. 2.6% in April.
 It then reports advance Q2 GDP Thursday, which
is expected to grow 2.8% y/y vs. 2.7% in Q1.  With the economy sluggish,
the MAS may not signal April tightening at its October policy meeting.
Czech Republic reports June CPI Wednesday,
which is expected to rise 2.3% y/y vs. 2.4% in May.  
This would still be above the 2% target, though within
the 1-3% target range.  The central bank has signaled that the first rate
hike will likely be in Q3, though timing will depend in large part on how
strong the koruna gets.  Next policy meeting is August 3, no change is
expected then.  
India reports June CPI and May IP
Wednesday.
 It then reports June
WPI Friday.  Price pressures have been lower than expected in recent
months, but we would downplay talk of rate cuts.  If anything, the RBI
tightening cycle is likely on hold for now but lower rates seems unlikely.
 Next RBI policy meeting is August 2, no change is expected then.
Brazil reports May retail sales Wednesday,
which are expected to rise 3.4% y/y vs. 1.9% in April.  
Overall, the real economy remains weak even as price
pressures continue to fall.  Lower than expected IPCA inflation of 3% y/y
for June has markets looking for a 100 bp cut from COPOM when it meets July 26.
Bank of Korea meets Thursday and is
expected to keep rates steady at 1.25%.
 CPI
rose a lower than expected 1.9% y/y in June, just below the 2% target.
 With the economy still sluggish, we see no need for the BOK to tighten
anytime soon.  
Chile central bank meets Thursday and is
expected to keep rates steady at 2.5%.

 CPI rose a lower than expected 1.7% y/y in June, the lowest since October
2013 and below the 2-4% target range for the first time since then.  If
the recovery does not pick up, we believe the central bank may resume cutting rates
in Q4.
Peru central bank meets Thursday and is
expected to cut rates 25 bp to 3.75%.
 CPI
rose a lower than expected 2.7% y/y in June, the lowest since September 2014
and below the 1-3% target range.  With the recovery lagging, we believe
the central bank will continue cutting rates in H2.

Colombia reports May IP and retail sales
Friday.
 The central bank will
also release its minutes that day.  At that meeting, the bank cut rates by
50 bp to 5.75%.  Next policy meeting is July 27, and another 50 bp cut
seems likely.  Inflation was 4.0% y/y in June, the lowest since January
2015 and right at the top of the 2-4% target range.    
    

Disclaimer

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