EM Preview for the Week of March 10, 2024

March 10, 2024

EM FX was mostly firmer last week, taking advantage of broad dollar weakness against the majors. PEN, ZAR, and THB outperformed while TRY, BRL, and ARS underperformed. The dollar is likely to remain on its back foot until the U.S. data come in a bit firmer, as last week’s dovish surprise from Powell along with the mixed jobs data undercut the greenback. For now, risk on sentiment should help EM build on its recent gains.

AMERICAS

Brazil reports February IPCA inflation Tuesday. Headline is expected at 4.44% y/y vs. 4.51% in January. If so, it would be the lowest since July 2023 and back within this year’s 1.5-4.5% target range. At the last COPOM meeting, the central bank cut rates 50 bp to 11.25% and said that pace of easing would be maintained over the next meetings. The next one is March 20 and another 50 bp cut to 10.75% is expected. Of note, the swaps market is pricing in 175 bp of total easing over the next six months that would see the policy rate bottom near 9.5%. January retail sales will be reported Thursday.

EUROPE/MIDDLE EAST/AFRICA

Czech Republic reports February CPI Monday. Headline is expected at 2.1% y/y vs. 2.3% in January. If so, it would be the lowest since February 2021 and nearing the center of the 1-3% target range. At the last policy meeting February 8, the Czech National Bank delivered a dovish surprise and cut rates 50 bp to 6.25% vs. 25 bp expected. Next policy meeting is March 20, and the size of the cut will depend in large part on how the koruna is trading. Of note, the swaps market is pricing in 250 bp of total easing over the next 12 months that would take the policy rate down to 3.75%. Retail sales will be reported Tuesday.

National Bank of Poland publishes its quarterly inflation report Monday. According to the central bank, there is a 50% probability that inflation will be between 2.8-4.3% in 2024 (vs. 3.2-6.2% in the November projections), with risks skewed to the upside. This validates the bank’s neutral policy guidance at the arch 6 meeting of neither hikes nor cuts this year. February CPI will be reported Friday. Headline is expected at 3.2% y/y vs. 3.9% in January. If so, it would be the lowest since March 2021 and back within the 1.5-3.5% target range. Next policy meeting is April 4, and no change is expected then. However, with inflation falling, the swaps market is pricing in 25 bp of reading over the next six months.

Bank of Israel releases its minutes Monday. At the February 26 meeting, the bank delivered a hawkish surprise and kept rates steady at 4.5% vs. an expected 25 bp cut to 4.25%. Q4 current account data will be reported Tuesday. February CPI will be reported Friday. Headline is expected at 2.5% y/y vs. 2.6% in January. If so, it would be the lowest since November 2021 and further within the 1-3% target range. Next policy meeting is April 8 and a 25 bp cut seems likely if disinflation continues. The swaps market is pricing in 50 bp of easing over the next six months followed by another 50 bp over the subsequent six months that would see the policy rate bottom near 3.5%.

Hungary central bank releases its minutes Wednesday. At the February 27 meeting, the bank cut rates 100 bp to 9.0%, as expected, and said it still saw the policy rate at 6-7% by the end of June. Since then, the feud between the central bank and the government has intensified, so much so that the bank warned that the tensions could limit the scope of further easing. Next policy meeting is March 26, and the size of the cut will depend in large part on how the forint is trading. Of note, the swaps market is pricing in 300 bp of total easing over the next 12 months that would see the policy rate bottom near 6.0%.

ASIA

China reports February new loan data sometime this week. New loans are expected at CNY1.5 trln vs. CNY4.92 trln in January, while aggregate financing is expected at CNY2.3 trln vs. CNY6.5 trln in January. PBOC sets its key 1-year MLF rate Friday. It is expected to be kept steady at 2.5%. It’s clear from the bond issuance plans announced last week that policymakers will not (and cannot) be relying on debt-fueled fiscal stimulus to boost growth. At the same time, monetary policy is reaching the limits of what it can do in a deflationary environment and so the 5% growth target for this year will be difficult to meet.

India reports February CPI Tuesday. Headline is expected at 5.07% y/y vs. 5.10% in January. If so, it would be the lowest since October and further within the 2-6% target range. At the last policy meeting February 8, the Reserve Bank of India kept rates steady at 6.5%. It was a hawkish hold as the the bank maintained its policy stance at “withdrawal of accommodation.” Governor Das stressed that “The job is not yet finished and we have to be vigilant of new supply shocks.” The swaps market is pricing in steady rates over the next three months followed by the start of an easing cycle with a 25 bp cut over the subsequent three months.  

More from Mind on the Markets

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved..

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction