Another Big Week Ahead

A few other central banks meet that will be of interest. Poland's central bank meets on May 5. It does not seem prepared to move now and possibly for the remainder of the year. The Czech central bank meets the next day. It is likely to be among the first central banks to hike rates in Europe, starting perhaps in the summer. The central bank itself projected three hikes this year, but given the slower rollout of the vaccine and the EU's fiscal stimulus, the central bank may scale back the number of hikes.

Brazil's central bank meets on May 5. It had already signaled that it would likely follow the 75 bps rate hike in March with another one of the same magnitude. The Brazilian real was the strongest emerging market currency in April, appreciating about 5% against the dollar, but it is still off 3% for the year, after depreciating by 22.5% last year.

Brazil's IBGE measure of inflation rose to 6.17% in April, year-over-year from 5.52% in March. It was the tenth consecutive increase in the year-over-year rate, which finished last year at 4.23% and 2019 at 3.91%. The Selic rate stands at 2.75%. Additional rate hikes will likely be delivered this year.

A few days before Turkey's central bank meets on May 6, April, CPI figures will be released. The market anticipates another increase, with the headline rate rising above 17%, from almost 16.2% in March. It would be the highest since the first half of 2019. One can only imagine the pressure the new central bank governor is under to unwind the 200 bps hike of his predecessor, which cost him his job.

Foreign investors have sold roughly the same amount of Turkish bonds in the five weeks since Agbal was dismissed as they bought in the previous ten weeks. The lira itself has depreciated by a little more than 12% in the last five weeks. A rate cut is unlikely, but if delivered or some maneuver is adopted that eases the funding pressure, the lira will likely be sold again. The key level for the dollar is around TRY8.50.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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