(Bloomberg) -- If the first week of the month is anything to go by, the sell-in-May mantra looks set to continue in emerging markets.

Despite optimism that the U.S.-China trade-war truce will broadly hold, last week was a losing one for both stocks and currencies, while local bonds were little changed. And the list of uncertainties in the week ahead is likely to ensure caution remains in the driving seat.

China’s central bank said on the weekend it will resort to “more powerful” policies to counter the hit that the developing world’s biggest economy has suffered from the Covid-19 outbreak. As distressed-debt levels rise across emerging markets, South African President Cyril Ramaphosa called for African countries to be allowed a two-year moratorium to provide them with the fiscal space to fight the fallout from the pandemic.

“After an initial bounce in activity after the opening of lockdowns, several factors are likely to restrain the recovery: high debt, corporate defaults, inefficient labor markets, de-globalization and China-U.S. tensions,” David Hauner, a London-based strategist at Bank of America Corp., wrote in a report. “The experience with the opening up in China implies caution for risk appetite in the rest of emerging markets.”

Listen: EM Weekly Podcast: U.S.-China Trade; Lockdown Easing; Rate Cuts

While a number of countries are moving toward easing restrictions, the impact of lockdowns is likely to weigh on markets for some time yet. China, Mexico and the Philippines reported economic contractions last quarter.

“The state of national lockdowns, securing new sovereign finance, disbursing announced stimulus and the full horror of disruption as seen through corporate results will continue to drive markets,” said Hasnain Malik, head of equity strategy at Tellimer in Dubai.

Mexico and Egypt Decide

  • Mexico’s central bank will probably cut interest rates by a further 50 basis points Thursday as the pandemic’s impact deepens. Investors will also be on watch out for the release of industrial production figures for March on Tuesday
  • Egypt’s central bank will likely hold rates after it saw $14 billion of capital outflows in March, when it slashed borrowing costs by the most ever
    • “Rate cuts could lead to a new round of capital flight, further declines in international reserves and a dwindling of foreign assets at commercial banks,” Bloomberg Economics said
    • Moreover, the country’s monthly inflation rate rose to a nine-month high of 1.3% in March, the state statistics agency said Sunday
  • Minutes from Brazil’s most recent central bank meeting will be released Tuesday. Policy makers cut rates to a record earlier this month
    • Retail sales data for March schedule for Wednesday is forecast to show a sharp contraction, while a reading of the country’s economic activity index this week will probably mirror the impact

Argentine Angst

  • Argentina extended the deadline to its debt offer to May 22, the government said in a resolution published in the Official Gazette on Monday
    • President Alberto Fernandez is waiting on counteroffers from creditors. He said in an interview with Futurock radio that all parties are seeking to avoid default, and he expects counter-proposals in coming days after Friday’s initial deadline for bondholders to accept a $65 billion restructuring offer expired without an agreement. The nation’s bonds were little changed in early London trade Monday
    • The government may consider easing the country’s ultra tight capital controls once it finishes negotiations with bondholders and coronavirus uncertainty clears, Economy Minister Martin Guzman said
    • Bloomberg economists expect Argentina’s April inflation data on Thursday to show a decline linked to the nationwide quarantine

Turkey Currency Trading

  • Turkey lifted a ban on trading liras with BNP Paribas SA, Citigroup Inc. and UBS Group AG, a quick reversal just days after it imposed the restrictions that rippled beyond the currency market
    • The banking watchdog imposed the ban last week after currency interventions and new anti-manipulation rules failed to stem the lira’s slide to a record low. The lira strengthened for a third day on Monday

Chinese Data, Malaysian Politics

  • China is scheduled to report inflation and producer price index data for April on Tuesday, while industrial production and retail sales figures are due Friday
    • The data will probably show the economy continued to improve, but with the post-lockdown recovery held back by the global slump, according to Bloomberg Economics
    • Industrial production may have swung back into expansion, while declines in investment and retail sales may have narrowed, it said
    • While the onshore yuan has declined this year, its drop is less than 2%, among the least in Asia
  • Malaysia’s ringgit, among the worst performers in the region this year, may face more headwinds. The economy probably contracted last quarter, according to Bloomberg Economics, which predicts a decline of 3.3% from a year ago. Tourism-related sectors suffered, while the oil-price war, political tension and the lockdown deepened the slump, it said, ahead of data due Wednesday
    • Political uncertainties may continue to weigh on Malaysian markets. Mahathir Mohamad and Anwar Ibrahim said over the weekend “it’s time” to restore an election mandate that they won two years ago, issuing a statement together for the first time since internal bickering in February led to the collapse of their ruling coalition. The two leaders -- now in the opposition -- said the current government led by Prime Minister Muhyiddin Yassin isn’t the choice of voters and doesn’t have a mandate to rule
  • India will release inflation and industrial production reports Tuesday and trade figures Friday
    • Despite some temporary pressures starting to show up in higher food prices due to supply bottlenecks, headline inflation will come down and average close to the Reserve Bank of India’s medium-term target of 4%, Goldman Sachs Group Inc. said in a note
    • RBI is likely to reduce policy rates by 100 basis points by the end of the third quarter, it said
    • India’s fiscal deficit is likely to be around 5.5% of gross domestic product for the year ending March 2021, a finance ministry official with knowledge of the matter said
    • The rupee has retraced some of its losses after sliding to a record low in April
  • Indonesia will report trade data on Friday
    • The rupiah is the top-performing emerging-market currency this quarter

Colombia Slowdown

  • Investors will watch for signs of a slowdown in Colombia during the first quarter when the country releases GDP figures on Friday. The national quarantine, which began in late March, has been extended through at least May 25

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