EM FX closed last week on a firm note as weak US jobs data supported the notion that the Fed will find it hard to tighten in H2. No major US data will be reported this week and the FOMC embargo for the June 14 will be in effect. As such, there is little on the near-term horizon that might help the dollar, so it’s likely to remain on the defensive this week.
As always, political risk in EM remains significant. Brazil and South Africa continue to simmer, and we see more bad news ahead from both. As of this writing, the outcome of the Mexican state elections is not yet known.
Caixin reports May China services and composite PMIs Monday. Recent data suggests the economy is slowing, albeit modestly. China reports May trade data Thursday, with exports expected to rise 7.0% and imports by 9.0% y/y. This will be followed by May CPI and PPI Friday. The former is expected to rise 1.5% y/y, while the latter is expected to rise 5.7% y/y.
Turkey reports May CPI Monday, which is expected to rise 11.7% y/y vs. 11.9% in April. If so, it would be the first deceleration since November. Still, inflation would remain well above the 3-7% target range and so we think further tightening will be needed. Next central bank policy meeting is June 15, and another hike in the Late Liquidity Window rate is possible. Turkey then reports April IP Thursday, which is expected to rise 4.1% y/y vs. 2.8% in March.
Chile reports April monthly GDP proxy Monday, which is expected to rise 0.8% y/y vs. 0.2% in March. Chile reports May trade Wednesday. It then reports May CPI Thursday, which is expected to rise 2.5% y/y vs. 2.7% in April. This would move it closer to the bottom of the 2-4% target range. The bank has signaled that the easing cycle is over for now. Next central bank policy meeting is June 15, and no change is expected.
Colombia reports May CPI Monday, which is expected to rise 4.49% y/y vs. 4.66% in April. If so, it would be the lowest rate since August 2015 and a bit closer to the 2-4% target range. Yet the weak economy has prompted the start of the easing cycle last month. Central bank minutes from that meeting will be reported Friday. Next policy meeting is June 30, and another 25 bp cut seems likely.
