EM Preview for the Week of November 19, 2023

November 19, 2023

EM FX was mostly firmer last week as the dollar saw broad-based weakness on expectations of a more dovish Fed. CLP, PLN, and CZK outperformed while COP, ARS, and TRY underperformed. Until we get some more data underscoring the U.S. economy’s resilience, the dollar is likely to remain vulnerable. EM and other risk assets should perform well near-term.

AMERICAS

Chile reports Q3 GDP and current account data Monday. Growth is expected at 0.3% q/q vs. -0.3% in Q2, while the y/y rate is expected at 0.2% vs. -1.1% in Q2. If so, it would be the first positive y/y reading since Q3 2022. However, the recovery remains at risk and so we expect the central bank to continue easing. Next policy meeting is December 19 and if the peso remains firm, the bank may go back to a 75 bp cut after downshifting at the October 26 meeting to 50 bp.

Mexico reports mid-November CPI data Thursday. Headline is expected at 4.31% y/y vs. 4.25% previously, while core is expected at 5.32% y/y vs 5.46% previously. If so, headline would accelerate for the first time since mid-December 2022 and move further away from the 2-4% target range. Banco de Mexico also releases its minutes Thursday. At that November 9 meeting, the bank kept rates steady at 11.25% but said they would remain there “for some time” vs. “for an extended period” previously. We can't say the bank was dovish, perhaps just less hawkish. Swaps market is now pricing in some odds of a cut over the next three months vs. steady rates before the decision. However, with only 50 bp of total easing seen over the next six months, the market views the bank as remaining very cautious. September GDP proxy and Q3 current account data will be reported Friday.

EUROPE/MIDDLE EAST/AFRICA

Poland reports October IP and PPI Tuesday. IP is expected at 1.7% y/y vs. -3.1% in September, while PPI is expected at -3.7% y/y vs. -2.8% in September. Construction output and real retail sales will be reported Wednesday. Construction is expected at 11.0% y/y vs. 11.5% in September, while sales are expected at 1.2% y/y vs. -0.3% in September. The recovery remains spotty and yet the central bank delivered a hawkish surprise this month by holding rates at 5.75% vs. an expected 25 bp cut. The swaps market is pricing in 25 bp of easing over the next three months, followed by another 25 bp of easing over the subsequent three months.

National Bank of Hungary meets Tuesday and is expected to cut the base rate 75 bp to 11.5%. At the last meeting October 24, the bank delivered a dovish surprise and cut the base rate 75 bp vs. 50 bp expected. It said that careful monetary policy was needed and that it would proceed with rate cuts at a slower pace. Deputy Governor Virag said that having the base rate end the year at 11% was “realistic.” The swaps market is pricing in 125 bp of easing over the next three months, followed by another 175 bp of easing over the subsequent three months.

Turkey central bank meets Thursday and is expected to hike rates 250 bp to 37.50%. As usual, the market is all over the place. Of the 24 analysts polled by Bloomberg, 1 sees 200 bp, 17 see 250 bp, 3 see 300 bp, 1 sees 350 bp, and 2 see 500 bp. At the last meeting October 26, the bank hiked rates 500 bp for the second straight time and repeated its previous statement that “monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in inflation outlook is achieved.” The swaps market is pricing in a peak policy rate near 38.5% over the next six months. If so, this wouldn’t be enough to lower inflation and stabilize the lira.

South Africa reports October CPI Wednesday. Headline is expected at 5.7% y/y vs. 5.4% in September, while core is expected at 4.2% y/y vs. 4.5% in September. Reserve Bank of South Africa meets Thursday and is expected to keep rates steady at 8.25%. At the last meeting September 21, the bank kept rates steady for the second straight time and Governor Kganyago warned “The job of tackling inflation is not yet done. Risks remain. Should we see them materialize, we stand ready to act.” The swaps market is pricing in some odds of a rate cut over the next six months, which may be too aggressive.

ASIA

Malaysia reports October trade data Monday. October CPI will be reported Friday and headline is expected to fall a tick to 1.8% y/y. If so, it would be the lowest since March 2021. While Bank Negara does not have an explicit inflation target, low price pressures should allow it to remain on hold for the time being. At the last meeting November 2, the bank kept rates steady at 3.0% and stressed that it would continue to manage the risks by providing liquidity and ensuring an orderly FX market. Next meeting is January 24 and no change is expected. The swaps market is pricing in steady rates over the next 12 months.

Taiwan reports October export orders Monday. Orders are expected at -7.6% y/y vs. -15.6% in September. If so, it would be the highest since October 2022. IP will be reported Thursday and is expected at -7.92% y/y vs. -6.72% in September. Korea reports trade data for the first twenty days of November Tuesday.

Singapore reports October CPI Thursday. Headline is expected at 4.5% y/y vs. 4.1% in September, while core is expected to pick up a tick to 3.1% y/y. If so, headline would accelerate for the second straight month to the highest rate since June. While the MAS does not have an explicit inflation target, rising price pressures may keep it on hold at the next policy meeting in January. October IP will be reported Friday and is expected at -1.8% y/y vs. -2.1% in September.

Bank Indonesia meets Thursday. At the last meeting October 19, Bank Indonesia delivered a hawkish surprise with a 25 bp hike to 6.0% vs. no change expected. Governor Warjiyo said “This increase is to strengthen rupiah exchange rate stabilization policies amid the impact of high global uncertainty and is a preemptive and forward looking step to mitigate impact on imported inflation.” Since then, the rupiah has gained about 2% vs. the dollar. Bloomberg consensus sees some odds of another 25 bp hike in H1 2024 before a modest easing cycle is seen starting in H2.

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