EM FX was mostly firmer last week as the dollar came under broad-based pressure. CLP, PLN, and CZK outperformed while PEN, ARS, and PHP underperformed. Global PMI readings this week should help determine with the U.S. economic outperformance is indeed dwindling. If so, the dollar should remain under pressure and risk assets should continue to rally.
AMERICAS
Chile reports Q1 GDP and current account data Monday. Growth is expected at 2.0% q/q vs. 0.1% in Q4, while the y/y rate is expected at 2.5% vs. 0.4% in Q4. The central bank meets Thursday and is expected to cut rates 50 bp to 6.0%. At the last meeting April 2, the bank cut rates 75 bp but signaled caution ahead as it raised its end-2024 inflation forecast to 3.8% vs. 2.9% previously and raised its 2024 growth forecast to 2-3% vs. 1.25-2.25% previously. The swaps market is pricing in 175 bp of total easing over the next 12 months that would see the policy rate bottom at 4.75%.
Mexico reports mid-May CPI Thursday. Headline is expected at 4.78% vs. 4.67% previously, while core is expected at 4.31% y/y vs. 4.34% previously. If so, headline would be the highest since January and further above the 2-4% target range. Next meeting is June 27 and if price pressures continue to rise, another hold seems likely. Banco de Mexico also releases its minutes Thursday. At the May 9 meeting, the bank kept rates steady at 11.0% after starting the easing cycle with a 25 bp cut at the March 21 meeting. The swaps market is pricing in 100-125 bp of total easing over the next 12 months. Q1 current account and April trade data will be reported Friday.
EUROPE/MIDDLE EAST/AFRICA
National Bank of Hungary meets Tuesday and is expected to cut rates 50 bp to 7.25%. At the last meeting April 23, the bank kept cut rates 50 bp to 7.75%. Deputy Governor Virag said that a 6.75-7.00% base rate by end-June was “realistic” but added that room for rate cuts in the second half of this year is limited. This would imply another 50 bp of cuts at the June policy meeting, bringing the policy rate to 6.75% by mid-year. Of note, the swaps market sees the base rate at 7.00% over the next three months and 6.75% over the subsequent six months.
South Africa reports April CPI Wednesday. Headline is expected to remain steady at 5.3% y/y while core is expected to fall two ticks to 4.7% y/y. If so, headline would remain near the top of the 3-6% target range. Next SARB meeting is May 30, and another hold seems likely. At the last meeting March 27, the bank kept rates steady at 8.25% and Governor Kganyago said “Given extra inflation pressure, headline now reaches the target midpoint only at the end of 2025, later than previously expected. As a result, the policy rate in our baseline forecast also starts normalizing later.” The swaps market is pricing in modest odds of a rate cut over the next six months.
Turkey central bank meets Thursday and is expected to keep rates steady at 50.0%. At the last meeting April 25, the bank left rates steady at 50.0%. With inflation still accelerating, we see some risks of a hawkish surprise this week. In April, headline CPI quickened to 69.80% y/y vs. 68.50% in March and core CPI surged to a new high of 75.81% vs. 75.21% in March. The swaps market is pricing in steady rates over the next three months, followed by the start of an easing cycle over the subsequent months. All told, 17.50 ppt of cuts are priced in over the next twelve months.
ASIA
Malaysia reports April trade data Monday. Exports are expected at 14.1% y/y vs. -0.8% in March, while imports are expected at 18.0% y/y vs. 1.7% in March. April CPI will be reported Friday. Headline is expected to pick up a tick to 1.9% y/y. If so, it would be the highest since September. Bank Negara Malaysia does not have an explicit inflation target, but rising price pressures should keep it on hold at the next meeting July 11. At the last meeting May 9, it kept rates steady at 3.0% but signaled that it is unlikely to shift to looser policy settings anytime soon. The swaps market continues to price in steady rates over the next three years.
Korea reports trade data for the first 20 days of May Tuesday. Bank of Korea meets Thursday and is expected to keep rates steady at 3.5%. At the last meeting April 12, the bank kept rates steady at 3.5% but tweaked its statement to say that it would keep its restrictive stance for a “sufficient” period vs. a “sufficiently long” period previously. Governor Rhee said that a rate cut in H2 “can’t be ruled out” if inflation slows sufficiently. The swaps market sees steady rates over the next six months, followed by the start of an easing cycle over the subsequent six months.
Bank Indonesia meets Wednesday and is expected to keep rates steady at 6.25%. At the last meeting April 24, the bank delivered a hawkish surprise and hiked rates 25 bp. BI said the hike was meant to stabilize the rupiah and to help prevent imported inflation and reiterated its readiness to intervene in financial markets to maintain IDR stability. Governor Warjiyo noted that foreign reserves are sufficient to help stabilize the rupiah. Since then, the rupiah has firmed modestly but not enough for BI change its policy stance.
Singapore reports April CPI Thursday. Headline is expected to remain steady at 2.7% y/y while core is expected to remain steady at 3.1% y/y. The MAS does not have an explicit inflation target, but elevated price pressure should keep it on hold at the July meeting. At the last meeting April 11, it said “Core Inflation is likely to remain elevated in the earlier part of the year” before moderating and then falling further in 2025. “Accordingly, current monetary policy settings remain appropriate.” IP will be reported Friday and is expected at 0.9% y/y vs. -9.2% in March.
