EM FX was mixed last week as the dollar put in an overall uneven performance. AUD, GBP, and NZD outperformed while JPY, CHF, and NOK underperformed. The dollar started off soft but recovered ground at the end of the week on higher-than-expected PCE readings that underscored the “higher for longer” theme for the Fed. The FOMC meeting and key data this week should be supportive of this theme and so we expect the dollar rally to continue.
AMERICAS
Chile reports March retail sales, IP, and unemployment Tuesday. Sales are expected at 3.0% y/y vs. 3.9% in February, IP is expected at 3.9% y/y vs. 7.9% in February, and unemployment is expected at 8.7% vs. 8.5% in February. March GDP proxy will be reported Thursday and is expected at 2.0% y/y vs. 4.5% in February. The recovery continues but remains spotty and so the central bank will continue easing. It cut rates 100 bp on January 31 and then cut 75 bp at the last meeting April 2. Next meeting is May 23 and if the peso remains weak, the bank may only cut 50 bp. The market is pricing in 125 bp of total easing over the next 12 months.
Colombia central bank meets Tuesday and is expected to cut rates 50 bp to 11.75%. At the last meeting March 22, the bank cut rates 50 bp to 12.25% but it was a dovish 5-2 vote as the dissents were in favor of larger 75 and 100 bp cuts. Since then, economic activity has picked up and Governor Villar leaned against more aggressive than expected rate cuts, noting that “big surprises can generate nervousness and significant changes in the direction of capital flows.” The market is pricing in 325 bp of total easing over the 12 months. The central bank releases its quarterly inflation report Friday.
Peru reports April CPI Wednesday. Headline is expected at 2.72% y/y vs. 3.05% in March. If so, it would be the lowest since May 2021 and back within the 1-3% target range. After keeping rates steady unexpectedly at the March 7 meeting, the bank then unexpectedly cut rates 25 bp to 6.0% at the April 11 meeting. The bank said that higher-than-expected March inflation had been “transitory” and added that “We project that annual inflation will continue its downward trend and converge gradually to the center of the target range in coming months.” Next meeting is May 9 and if disinflation continues, another 25 bp cut is likely.
EUROPE/MIDDLE EAST/AFRICA
Poland reports April CPI Tuesday. Headline is expected at 2.5% y/y vs. 2.0% in March. If so, it would be the first acceleration since February 2022 but would merely match the 2.5% target. The National Bank of Poland has kept rates steady since the last 25 bp cut in October and warned that inflation will rise to between 3.9-7.5% in Q4. Governor Glapinski said that no one on the MPC is talking about rate cuts in 2024. Next meeting is May 9, and no change is expected then. However, the market is pricing in 25 bp of easing over the next six months.
Czech National Bank meets Thursday and is expected to cut rates 50 bp to 5.25%. Governor Michl recently said that rates may be cut this week but warned that any further easing will be “very cautious” and that the cycle could be halted at any time if inflation is more persistent than currently expected. Elsewhere, Vice Governor Zamrazilova said she would consider a 25 or 50 bp cut this week, while both Holub and Prochazka favor maintaining the 50 bp pace. At the last meeting March 20, the bank cut rates 50 bp by a 5-2 vote, and minutes showed Frait and Holub wanted to cut by 75 bp. The market is pricing in 125 bp of total easing over the next 12 months.
Turkey reports April CPI Friday. Headline is expected at 70.10% y/y vs. 68.50% in March, while core is expected at 75.70% y/y vs. 75.21% in March. IF so, headline would be the highest since November 2022 while core would be the highest on record dating back to 2004. The central bank just left rates steady at 50.0% last week and said, “Considering the lagged effects of the monetary tightening, the Committee decided to keep the policy rate unchanged, but reiterated that it remains highly attentive to inflation risks.” The market is pricing in four percentage points of easing over the next six months.
ASIA
Korea reports March IP Tuesday. It is expected at 4.2% y/y vs. 4.8% in February. April trade data will be reported Wednesday. Exports are expected at 15.0% y/y vs. 3.1% in March, while imports are expected at 7.0% y/y vs. -12.3% in March. April CPI will be reported Thursday. Headline is expected to fall a tick to 3.0% y/y, while core is expected to remain steady at 2.4% y/y. At the last meeting April 12, the Bank of Korea kept rates steady at 3.5% but said a rate cut in H2 was possible if inflation slows as expected. The market is pricing in steady rates over the next 12 months.
China reports official April PMIs Tuesday. Manufacturing is expected at 50.3 vs. 50.8 in March, while non-manufacturing is expected at 52.3 vs. 53.0 in March. Caixin also reports its April manufacturing PMI Tuesday and is expected to fall a tick to 51.0. The PMIs will likely add to evidence of stabilizing economic activity. However, a sustained pick-up in economic growth is unlikely without policies that cause growth to shift from unproductive debt-fueled investment-led growth to consumption. With the PBOC still in easing mode and the Fed staying hawkish, downside pressure on CNY and CNH are intact. The PBOC may also come under increasing pressure to lift the USD/CNY fixing (weaker CNY) as it has traded near the 2% intra-day limit over the past several weeks.
Indonesia reports April CPI Thursday. Headline is expected at 3.07% y/y vs. 3.05% in March, while core is expected at 1.79% y/y vs. 1.77% in March. Bank Indonesia just hiked rates 25 bp to 6.25% last week. The bank said the hike was meant to stabilize the rupiah and to help prevent imported inflation. It reiterated its readiness to intervene in financial markets to maintain IDR stability, and Governor Warjiyo noted that foreign reserves are sufficient to help stabilize the rupiah. Next meeting is May 22 and if the rupiah remains under pressure, another rate hike is possible.
