Rand and Rate Risks Land in Emerging Markets With Dollar Lurking

(Bloomberg) -- Emerging-market traders have a spate of country-specific events to divert them from their obsession with the dollar this week.

Center-stage is South Africa’s May 8 election, which may determine whether President Cyril Ramaphosa can deliver on pledges to revive the $350 billion economy. The rand is starting to swing ahead of the vote: the currency’s implied volatility had the biggest jump in emerging markets last week.

Elsewhere, interest-rate decisions from at least seven central banks will concentrate minds, with Malaysia and the Philippines set to ease in the wake of the U.S. Federal Reserve’s message of patience last week.

Adding to the mix, Turkey’s top electoral body will decide whether to nullify the result of Istanbul municipal election as President Recep Tayyip Erdogan’s ruling party fights to regain control of the city. And Argentina releases data on construction and industrial production, with President Mauricio Macri trying to shore up support ahead of the October election.

Investors will be watching for “the impact on risk sentiment from the events above as well as the movement of dollar against emerging-market currencies, which will be the turning point” for the market, said Esther Law, a London-based senior investment manager at Amundi Asset Management who, though cautious in the near term, still sees value in select emerging-market bonds and currencies following their recent selloff.

South Africa Votes

Rate Decisions

• Bank Negara Malaysia could ease on Tuesday as both growth momentum and inflation have been lackluster, Mustafa Arif, a junior economist in Bengaluru at Australia & New Zealand Banking Group Ltd., wrote in a report
• A rate cut by the Bangko Sentral ng Pilipinas, which meets on Thursday, can come “much, much faster” after S&P Global Ratings raised the country’s credit grade, Governor Benjamin Diokno said last week. Policy makers at the Bank of Thailand convene on Wednesday
• Policy makers in Brazil, Chile and Peru are expected to stand pat on interest rates this week. Brazil, which decides on Wednesday, will probably keep rates at an all-time low of 6.5 percent amid uncertainty about the pace of the government’s pension overhaul
• Chile is set to pause again Thursday after two hikes in the past seven months took the key rate to 3 percent. Inflation is close to the bottom of a target range as growth weakens. Peru is also scheduled to announce its decision on Thursday, holding steady at 2.75 percent as growth remains subdued while inflation stays near the target
• Serbia’s central bank will probably also keep rates unchanged

Trade Talks

• Chinese President Xi Jinping’s top trade envoy, Liu He, returns to Washington on Wednesday for what could be a closing round of trade talks. President Donald Trump and his Chinese counterpart will then decide whether they meet to finish the trade deal, White House spokeswoman Sarah Sanders said, adding that U.S. sees such a meeting as likely
• “A deal may lift a key overhang on global markets, but not necessarily on the global economy,” Prakash Sakpal, an economist in Singapore at ING Groep NV, wrote in a note
  • “The U.S. administration’s trade war is no longer confined to China only as tensions with the significant trading partners including the EU and Japan simmer in the background”

Thai Vote Results

Chinese Data, Brazil’s Pension Saga:

• China will unveil a slew of data in the coming week, including trade and and inflation for April. Export growth could have moderated after a strong reading in March, as suggested by the recent contraction in South Korean exports and Taiwan’s export orders, according to ANZ.
• The release of GDP figures will dominate the economic calendar in Southeast Asia. Indonesia reports first-quarter GDP on Monday, followed by the Philippines on Thursday
• Brazil’s pension saga continues as a special lower house committee starts meeting on Tuesday. It’s a new phase in the bill’s legislative process that may lead to changes to some of the proposal’s central points

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