China's HSBC PMI for the manufacturing sector likely remained subdued in June in the midst of tight liquidity in the banking system. Inflationary pressures remain high in Brazil, but moderating food prices are providing some relief. A recent initiative to extend subsidised credit to low-income-families to buy certain durable goods underlines that demand stimulus is still active, making it difficult for the central bank to contain inflation.
- Economic outlook remains gloomy
- National Bank has further to go
- Weaker zloty, but downside capped
The monthly cocktail of indicators from China is due over the weekend. We keep an eye on hard data and any effects of financial tightening on total social financing, while we remain sceptical of trade data so far. The recent hawkish tone from the Brazilian central bank is a step in the right direction, but signs of cyclical strengthening suggest that the central bank is already far behind the curve, meaning that inflation-fighting will be costly, underlining the urgent need for the central bank to regain credibility.
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Bond market: Long bond yields set to rise at a moderate pace
Chinese PMIs will likely confirm further weakness in May and we believe that large- and state-owned enterprises are now running out of steam. In Brazil, all attention is on the Banco Central do Brasil after it recently accelerated the pace of tightening and signalled new-found hawkishness. Meanwhile, inflation remains high and economic growth disappointed in Q1. We look forward to receiving the minutes from the policy meeting to determine how hawkish the central bank really is.