EM Preview for the Week of July 9, 2023

July 09, 2023

EM FX was mixed last week despite broad-based dollar weakness against the majors. KRW, THB, and RON outperformed while HUF, BRL, and ARS underperformed. Despite the slightly softer than expected jobs report, Fed tightening expectations are likely to remain elevated this week. CPI and PPI data will likely determine the dollar’s near-term direction and we would fade this bout of weakness. Indeed, we view current levels as a gift for dollar bulls to get long again.


Colombia reports June CPI Monday. Headline is expected at 12.26% y/y vs. 12.36% in May. If so, it would be the third straight month of deceleration from the 13.34% peak in March to the lowest since October. At the last policy meeting June 30, the central bank kept rates steady at 13.25% for the first time since the tightening cycle began in September 2021. Minutes show that policymakers see no conditions in place for easing as inflation remains “excessively” high. The swaps market is pricing in the start of an easing cycle over the next three months. May IP and retail sales will be reported Friday. Manufacturing is expected at -4.1% y/y vs. -6.4% in April, while sales are expected at -4.7% y/y vs. -6.9% in April.

Brazil reports June IPCA inflation Tuesday. Headline is expected at 3.15% y/y vs. 3.94% in May. if so, it would be the lowest since September 2020 and well within the 1.75-4.75% target range for this year. With inflation falling, COPOM is widely expected to start the easing cycle at the next meeting August 2 with a 25 bp cut. The swaps market is pricing in 75 bp of easing over the next three months followed by another 150 bp of easing over the subsequent three months. May retail sales will be reported Friday and expected at 1.3% y/y vs. 0.5% in April.

Peru central bank meets Thursday and is expected to keep rates steady at 7.75%. At the last meeting June 8, it kept rates steady but said it wouldn’t rule out future rate hikes. However, the bank saw inflation falling close to target by year-end. Bloomberg consensus sees the start of an easing cycle with a 25 bp cut at either the August 10 or September 14 meetings. After that, consensus sees 75 bp of easing in Q4.


Czech Republic reports May retail sales Monday. Sales ex-autos are expected at -6.2% y/y vs. -7.7% in April. June CPI will be reported Thursday, with headline expected at 9.7% y/y vs. 11.1% in May. If so, it would be the lowest since December 2021 but still well above the 1-3% target range. At the last policy meeting June 21, the Czech National Bank kept rates on hold at 7.0% and said that market bets on rate cuts may not materialize as rates will stay “relatively high” for longer. The vote was 5-2 with the dissents in favor of a 25 bp hike. However, two other policymakers said they couldn’t rule out further hikes if rates abroad rise. Next meeting is August 3 and no change is expected then.

Bank of Israel meets Monday and is expected to keep rates steady at 4.75%. However, a handful of analysts polled by Bloomberg look for a 25 bp hike to 5.0%. At the last meeting May 22, the bank hiked rates 25 bp and said politics have forced it to hike more than it planned due to shekel weakness. Since that meeting, the shekel has weakened around 1% but remain vulnerable as protests are intensifying again after Prime Minister Netanyahu said he would continue his efforts to push through controversial judicial reforms. June trade data will be reported Thursday. June CPI will be reported Friday and headline is expected to fall two ticks to 4.4% y/y. If so, it continue the deceleration from the 5.4% peak in January to the lowest since June 2022.

Turkey reports May current account data Tuesday. A deficit of -$7.55 bln is expected vs. -$5.40 bln in April. if so, the 12-month total would rise to -$59.5 bln vs. -$57.8 bln in April, the highest June 2012. Until interest rates are raised further, the nation will have trouble financing its twin deficits. Last month’s rate hike was a start but much more needs to be done. Indeed, with inflation running near 40%, the nominal policy of 15% is much too low. Next policy meeting is July 20 and another large hike will be needed then to stabilize the lira. May IP will be reported Wednesday and is expected at 0.1% y/y vs. -1.2% in April. May retail trade will be reported Thursday.


China reports June money and loan data sometime this week. New loans are expected at CNY2.3 trln vs. CNY1.36 trln in May and aggregate financing is expected at CNY3.05 trln vs. CNY1.56 trln in May. June CPI and PPI will be reported Monday. CPI is expected to remain steady at 0.2% y/y while PPI is expected at -5.0% y/y vs. -4.6% in May. June trade data will be reported Thursday. Exports are expected at -10.0% y/y vs. -7.5% in May, while imports are expected at -4.4% y/y vs. -4.5% in May. Overall, the mainland data warn of a deflationary spiral ahead if policymakers do not take aggressive action. For now, we are only seeing very modest measures.

Singapore reports advance Q2 GDP data Monday. This will be the first snapshot of regional activity for Q2. GDP is expected at -0.2% q/q vs. -0.4% in Q2, which would be two straight quarters of contraction. The y/y rate is expected at 0.3% vs. 0.4% in Q1 and would be the weakest since Q4 2020. Singapore and the other regional exporters continue to suffer. With inflation continuing to decelerate, we believe the MAS will keep policy on hold for the second straight meeting in October.

India reports June CPI and May IP Wednesday. Headline inflation is expected at 4.60% y/y vs. 4.25% in May while IP is expected at 5.0% y/y vs. 4.2% in April. If so, it would be the first acceleration in inflation since January but inflation would still be well within the 2-6% target range. At the last policy meeting June 8, the Reserve Bank of India kept rates steady at 6.5%. The decision was unanimous but the bank flagged risks of further tightening by keeping its bias towards “removal of accommodation” by a 5-1 vote. Das repeated his statement from the last hold that the decision remains a “pause, not a pivot.” The market says otherwise and sees steady rates over the next six months followed by the start of an easing cycle over the subsequent six months. June trade data and WPI will be reported Friday. WPI is expected at -3.22% y/y vs. -3.48% in May.

Bank of Korea meets Thursday and is expected to keep rates steady at 3.5%. At the last policy meeting May25, the bank left rates steady at 3.5%. The vote was unanimous but Governor Rhee said the market should not think the bank won’t hike again as six members were open to a terminal rate of 3.75%. The bank said it would keep a restrictive policy stance in place for a “considerable time.” The swaps market is pricing in one more 25 bp hike to 3.75% over the next six month, followed by the start of an easing cycle over the subsequent six months.

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