EM FX was largely weaker last week as the dollar posted broad-based gains. CNY, MXN, and PHP outperformed while CLP, BRL, and ZAR underperformed. With little data last week, dollar strength carried over from the stronger than expected jobs report. This week brings major US data releases that are likely to underscore rising stagflation risks. On top of the data, expect more trade noise and threats to Fed independence, all of which make for a toxic brew for the greenback.
AMERICAS
Several countries report May GDP proxies this week. Brazil reports Monday and is expected at 4.10% y/y vs. 2.46% in April. Peru reports Tuesday and is expected at 2.0% y/y vs. 1.4% in April. Colombia reports Friday and is expected at 2.3% y/y vs. 1.1% in April. Mexico reports next week, while Chile reported already at 3.2% y/y vs. 3.7% expected and 2.5% in April. Growth in the region remains at risk from the avalanche of tariffs and so policymakers will be looking to add stimulus when possible.
EUROPE/MIDDLE EAST/AFRICA
Israel reports June CPI data Tuesday. Headline is expected to remain steady at 3.1% y/y. If so, it would remain just above the 1-3% target range. Bank of Israel just kept rates steady at 4.5% and cut the 2025 growth forecast by two ticks to 3.3%. Bank researchers also see the policy rate at 3.75% in 12 months vs. 4.0% at the April meeting. The swaps market is slightly more dovish and is pricing in 75-100 bp of total easing over the next 12 months that would see the policy rate bottom between 3.50-3.75%.
ASIA
Singapore reports Q2 GDP data Monday. Growth is expected at 0.8% q/q vs. -0.6% in Q1, while the y/y rate is expected at 3.6% vs. 3.9% in Q1. If so, the y/y rate would be the lowest since Q2 2024. The Monetary Authority of Singapore holds its quarterly policy meeting next week. At the last meeting April 14, the MAS loosened policy for the second straight meeting by reducing “slightly” the slope of its S$NEER trading band whilst keeping the width and midpoint unchanged. It noted that “There are downside risks to Singapore’s economic outlook stemming from episodes of financial market volatility and a sharper-than-expected fall in final demand abroad. A more abrupt or persistent weakening in global trade will have significant ramifications on Singapore’s trade-related sectors, and in turn, the broader economy.” The MAS cut its core inflation forecast to average 0.5–1.5% in 2025 vs. 1.0–2.0% in January, and cut its growth forecast for this year to 0-2% vs. 1-3% in January. Both growth and inflation are at the low end of these forecasts and so we believe the MAS may loosen policy again next week.
China reports June money and loan data sometime this week. China reports June trade data Monday. Exports are expected at 5.0% y/y vs. 4.8% in May, while imports are expected at 0.3% y/y vs. -3.4% in May. Q2 GDP and June real sector data will be reported Tuesday. GDP growth is expected at 0.9% q/q vs. 1.2% in Q1, while the y/y rate is expected at 5.1% vs. 5.4% in Q1. This would be in line with China’s 2025 growth target of “around” 5%. It’s worth pointing out that China’s growth target is a government-set goal used as a policy tool to guide economic/social planning rather than a reflection of underlying supply and demand dynamics. As such, the quality and sources of China’s growth are more relevant more investors. In our view, three major structural constraints prevent any meaningful effort to increase the role consumption plays in China’s economy: low household income levels, high precautionary savings, and high levels of household debt. As such, China will continue to lean heavily on infrastructure to hit its growth target. This is good for commodity prices but bad for China’s long-term economic health.
India reports June CPI data Monday. Headline is expected at 2.26% y/y vs. 2.82% in May. At the last meeting June 6, the Reserve Bank of India delivered a dovish surprise and cut rates 50 bp to 5.50% vs. 25 bp expected. It was a 5-1 vote, with the dissenter in favor of a smaller 25 bp cut. The RBI noted that “inflation has softened significantly over the last six months” and argued for “frontloading the rate cuts to support growth.” Importantly, the RBI decided to change its stance from accommodative to neutral due to “very limited space to support growth.” This suggests the RBI is done easing for now. Next meeting is August 7 and no change is expected. However, the swaps market is pricing in around 50% odds of one last 25 bp cut over the next 12 months that would see the policy rate bottom near 5.25%.
Bank Indonesia meets Wednesday and is expected to keep rates steady at 5.5%. However, the market is split as nearly half the analysts polled by Bloomberg look for a 25 bp cut to 5.25%. At the last meeting June 18, the bank kept rates steady at 5.5%. Governor Warjiyo said “BI will continue to monitor the scope for reducing the BI rate to support economic growth,” adding that the timing will depend on global conditions and rupiah stability. Indeed, he stressed that “BI is highly committed to maintaining the exchange rate of the rupiah.” Of note, Bloomberg consensus sees one 25 bp cut in Q3 and another 25 bp cut in Q4 that would see the policy rate end the year at 5.0%. With the rupiah remaining relatively firm, we see some risks of a dovish surprise this week.
