EM Preview for the Week of November 21, 2021

November 21, 2021

EM FX was hit across the board last week as the dollar asserted broad-based strength on the back of strong U.S. data and increasingly hawkish Fed officials. INR, PEN, THB, and TWD were able to eke out miniscule gains last week, but most were significantly weaker, led by TRY, CLP, BRL, and PLN. We believe the dollar rally will continue, though technical indicators are getting stretched and warn of a potential near-term correction. However, that should be viewed as a buying opportunity as the fundamental drivers still favor a stronger dollar.


Mexico reports mid-November CPI Wednesday. Headline inflation is expected to rise 6.88% y/y vs. 6.12% in mid-October. If so, it would be the highest since May 2001 and further above the 2-4% target range. Q3 current account data will be reported Thursday, with a deficit of -$4.9 bln expected vs. a $6.3 bln surplus in Q2. Banco de Mexico minutes will also be released Thursday. At the last meeting, the bank hiked rates 25 bp to 5.0% it was a 4-1 split decision with the dissent in favor of steady rates. Next policy meeting is December 16 and another 25 bp hike to 5.25% is likely. Swap market is pricing in another 200-225 of tightening over the next twelve months, which seems too aggressive to us. October trade will be reported Friday, with a deficit of -$2.5 bln is expected vs. -$2.4 bln in September.

Brazil reports mid-November IPCA inflation and October current account data Thursday. Inflation is expected at 10.66% y/y vs. 10.34% in mid-October. If so, it would be close to the cycle high from October and well above the 2.25-5.25% target range. Of note, that range is set to fall to 2-5% in 2022. Next COPOM meeting is December 8. While the bank promised another 150 bp, markets were disappointed with the last 150 bp hike to 7.75% back in October. CDI market is looking for a larger 175-200 bp move next month. Swap market is pricing in another 525 of tightening over the next twelve months, which seems too aggressive to us.


Poland reports October industrial and construction output and PPI Monday. IP is expected at -0.5% m/m vs. 11.0% in September, while PPI is expected to rise 11.0% y/y vs. 10.2% in September, suggesting price pressures are still rising. CPI rose 6.8% y/y in October, the highest since May 2001 and well above the 1.5-3.5% target range. Yet the central bank has only hiked rates twice for a grand total of 115 bp. More needs to be done but the bank has not committed to an extended tightening cycle in its forward guidance. Next policy meeting is December 8 and another 75 bp hike to 2.0% is likely then. Swap market is pricing in another 150 of tightening over the next twelve months, which does not seem aggressive enough to us. Real retail sales will be reported Tuesday and are expected to rise 3.7% m/m vs. -2.4% in September.

Bank of Israel meets Monday and is expected to keep rates steady at 0.10%. At the last meeting October 7, the central bank delivered a hawkish hold by announcing an end to QE and seeing the policy rate between 0.10-0.25% in a year vs. 0.10% currently. Inflation unexpectedly eased to 2.3% y/y in October, moving closer to the center of the 1-3% target range and so there is little pressure to deliver any further tightening near-term. However, it will likely reaffirm its commitment to use FX intervention to prevent excessive shekel strength. Ahead of the decision, October unemployment and September manufacturing production will be reported.

Russia reports October IP and PPI Wednesday. The former is expected at 5.8% y/y vs. 6.8% in September, while the latter is expected at 27.9% y/y vs. 26.3% in September. The PPI reading would be particularly concerning, suggesting further upside risks for CPI going forward. CPI rose 8.13% y/y in October, the highest since January 2016 and more than twice the 4% target. The central bank has hiked rates 325 bp so far this year to 7.5%, but more needs to be done. Next policy meeting is December 17 and another 75 bp hike to 8.25%seems likely then. President Putin is once again testing the West with its growing troop buildup along the Ukraine border, as the U.S. shared intelligence with its NATO allies suggesting Russia is preparing for a large-scale push into Ukraine from multiple locations.

South Africa reports October PPI Thursday. It is expected to pick up to 8.0% y/y vs. 7.8% in September. Last week, the SARB delivered a 25 bp hike to 3.75% and signaled quarterly hikes in 2022, 2023, and 2024. However, the vote to hike was a split 3-2, supporting our view that this aggressive rate path will be hard to achieve. Indeed, Bloomberg consensus sees only a 25 bp hike in H1 and another one in H2 that would take the policy rate to 4.25% by end-2022. Next policy meeting is January 27 and steady rates are likely then. Moody’s is set to review the country Friday and the recent medium-term budget statement likely helped stave off another downgrade from the current Ba2. Indeed, it’s possible that its outlook is moved from negative to stable on the strength of the budget.

National Bank of Hungary is expected to hike the one-week deposit rate Thursday by 10 bp to 2.60%. Last Thursday, the bank unexpectedly hiked this rate 70 bp to 2.5% after hiking the benchmark rate last Tuesday 30 bp to 2.1%, as expected. These two rates are typically the same and move together, but the bank recently said that it “must be ready to set the interest rate on the one-week deposit above the base rate” so that any increase in short-term risks in financial and commodity markets can be addressed “quickly and flexibly.” With the forint coming under greater pressure last week, the bank is expected to snug the one-week rate higher.


Korea reports trade data for the first 20 days of November Monday. Bank of Korea meets Thursday and is expected to hike rates 25 bp to 1.0%. After it started the tightening cycle with a 25 bp hike to 0.75% in August, the bank remained on hold in October, signaling a modest pace of hikes likely lies ahead. Indeed, the next hike to 1.25% isn’t fully priced in until Q3 2022. However, markets may have to reassess this path as price pressures are rising. Last week, October PPI was reported at 8.9% y/y vs. 7.6% in September. This was the highest since October 2008 and warns of upside risks to CPI, which rose 3.2% y/y in October. This was the highest since January 2012 and further above the 2% target.

Taiwan reports October export orders Monday. Orders are expected to rise 21.6% y/y vs. 25.7% in September. If so, this would signal continued strength in export shipments well in 2022. IP will be reported Tuesday and is expected to rise 11.90% y/y vs. 12.24% in September. While the economy remains in solid shape, the political landscape is likely to get more uncertain. A bipartisan group of lawmakers last week reintroduced a bill that would require the U.S. to seek Taiwan’s membership and meaningful participation at the IMF. While the bill is unlikely to go anywhere, it represents a growing effort by the West to push back against China’s growing assertiveness regarding Taiwan. Elsewhere, Taiwan has applied for members hip in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), while China has also applied.

Singapore reports October CPI Tuesday. Headline is expected to rise 2.9% y/y vs. 2.5% in September, while core is expected to rise 1.4% y/y vs. 1.2% in September. While the MAS does not have an explicit inflation target, rising price pressures led the bank to tighten policy last month with a modest steepening of its S$NEER trading band. This suggests the focus has shifted from boosting growth to taming inflation. October IP will be reported Friday. Of note, Singapore will chair the commission next year of the group of CPTPP nations. On Taiwan’s bid to join, Foreign Minister Balakrishnan said “We would welcome their application in the same way we would welcome any economy that is willing and able to meet those high standards. Having said that, there are obviously political complications in that respect, and like many of the issues across the straits, again you do need resolution.”

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. 2021. All rights reserved..

This browser is not fully supported by our public website and may not display or function as expected for this reason. Please note, the Infuse Portal and BBH client applications fully support the IE 11 browser.

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