EM Preview for the Week of June 9, 2024

June 09, 2024

EM FX was mostly softer last week as the dollar mounted a broad-based recovery on the back of strong U.S. data. KRW, THB, and TWD outperformed while MXN, BRL, and COP underperformed. While the U.S. economy is undoubtedly slowing, there are still pockets of strength and so the Fed is likely to deliver a hawkish hold this week. This should keep downward pressure on EM, especially as political risk in several countries remains in play.


Brazil reports May IPCA inflation Tuesday. Headline is expected at 3.88% y/y vs. 3.69% in April. If so, it would be the first acceleration since September but would remain well within the 1.5-4.5% target range. Next COPOM meeting is June 19, and no change is expected as the easing cycle has likely ended. Indeed, the market is starting to price in some odds that the tightening cycle begins over the next three months, which seems too aggressive.

Colombia reports May CPI Tuesday. Headline is expected to remain steady at 7.16%, while core is expected at 7.82% y/y vs. 8.19% in April. If so, headline would remain well above the 2-4% target range while core would be the lowest since June 2022. After a cautious start to the easing cycle with 25 bp cuts in December and January, the central bank delivered 50 bp cuts in March and April but signaled that inflation must fall faster to speed up rates more. Next meeting is June 28 and another 50 bp cut to 11.25% seems likely. April IP and retail sales will be reported Friday.

Peru central bank meets Thursday and is expected to cut rates 25 bp to 5.5%. At the last meeting May 9, the bank cut rates 25 bp to 5.75% and reiterated that future decisions will depend on incoming data. Since then, headline inflation has fallen further to 2.0% y/y, the lowest since December 2020 and hitting the 2% target. The central bank will also release its Inflation Report with updated macro forecasts.


Bank of Israel releases its minutes Monday. At the May 27 meeting, the bank kept rates steady at 4.5% and warned that “there are several risks of a potential acceleration in inflation: geopolitical developments and their effects on economic activity, a depreciation of the shekel, continued supply constraints on activity in the construction and air travel industries, fiscal developments, and global oil prices.” May CPI will be reported Friday. Headline is expected at 3.2% y/y vs. 2.8% in April. If so, it would be the third straight month of acceleration to the highest since November and back above the 1-3% target range. Next meeting is July 8, and no change is expected then.

Hungary reports May CPI Monday. Headline is expected at 4.2% y/y vs. 3.7% in April. If so, it would be the second straight month of acceleration to the highest since December and back above the 2-4% target range. At the last meeting May 21, the central bank cut rates 50 bp to 7.25% and signaled a similar cut at the next meeting June 18 to 6.75%. After that, the bank has not committed to further easing and higher inflation would explain why not. That said, the market is pricing in another 25 bp of easing in H2.

Czech Republic reports May CPI Tuesday. Headline is expected at 2.8% y/y vs. 2.9% in April. If so, inflation would remain within the 1-3% target range after spiking from 2.0% in both February and March. At the last meeting May 2, the central bank cut rates 50 bp to 5.25% but sent a hawkish signal by raising its year-end PRIBOR forecast by a full percentage point for both end-2024 and end-2-25, implying a slower pace of easing ahead. Next meeting is June 27 and a 25 bp cut to 5.0% seems likely. The market is pricing in a total 75 bp of easing over the next 12 months.


China reports May new loan and money supply data sometime this week. New loans are expected at CNY1.069 trln vs. CNY732 bln in April, while aggregate financing is expected at CNY2.99 trln vs -CNY72 bln in April. Policymakers are reaching the limits of what they can do to stimulate the economy. CPI and PPI will be reported Wednesday. CPI is expected at 0.4% y/y vs. 0.3% in April, while PPI is expected at -1.5% y/y vs. -2.5% in April. If so, CPI would accelerate for the second straight month to the highest since February. Similarly, it would be the least PPI deflation since February 2023.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.5%. However, a couple of analysts polled by Bloomberg look for a 25 bp cut. At the last meeting April 10, the bank voted 5 to 2 to maintain the policy rate at 2.5%, with the dissents in favor of a 25 bp cut. Since then, the May CPI data ran hot and so we think the BOT remains on hold for now, as headline inflation of 1.54% y/y is the highest since April 2023 and nearing the midpoint of the 1-3% target range. Despite government pressure to cut rates, we expect the BOT to hold rates for now. The market sees some odds of a 25 bp cut over the next 12 months.

India reports May CPI and April IP Wednesday. Headline is expected at 4.80% y/y vs. 4.83% in April. If so, it would be the lowest since May 2023 and further within the 2-6% target range. WPI will be reported Friday and is expected at 2.85% y/y vs. 1.26% in April. If so, it would be the highest since January 2023 and would justify RBI cautiousness. The bank kept rates steady last week at 6.5%, as expected, and raised its growth projections but made no changes to the inflation forecasts. Nonetheless, the voting split suggests the bar to loosen policy is falling. The vote was 4-2 to keep rates on hold versus 5-1 in April as Goyal joined Varma in voting for a 25 bp cut. The swaps market is pricing in steady rates over the next six months followed by the start of an easing cycle over the subsequent six months as inflation falls towards the mid-point of the RBI’s 2-6% target range.

Taiwan central bank meets Thursday and is expected to keep rates steady at 2.0%. Taiwan rates have likely peaked. After the May CPI data last week, central bank Governor Yang said “CPI, core CPI, important staples prices, and commonly purchased items prices are gradually falling.” Headline came in at 2.24% y/y vs. 2.10% expected and a revised 1.94% (was 1.95%), while core came in at 1.84% y/y vs. 2.0% expected and 1.81% in April. While the bank does not have an explicit inflation target, the data should keep the bank on hold when it meets next Thursday. However, the swaps market still sees some odds of one more hike over the next 12 months. Lastly, Yang noted that “The economy is recovering but it’s not very strong.”  

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