EM Preview for the Week of November 26, 2023

November 26, 2023

EM FX was mixed last week despite broad-based dollar weakness against the majors. CLP, COP, and CNY outperformed while ZAR, THB, and ARS underperformed. The recent U.S. data have been mixed and until we see a string of stronger data, the dollar is likely to remain under pressure. EM could gain near term, but the global backdrop of slow growth and tight liquidity is not conducive to a sustainable rally.


Mexico reports October trade data Monday. Banco de Mexico releases its quarterly inflation report Wednesday. At the last policy meeting November 9, 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 75 bp of total easing seen over the next six months, the market views the bank as remaining very cautious.

Brazil reports mid-November IPCA inflation and October central government budget data Tuesday. Headline inflation is expected at 4.82% y/y vs. 5.05% in mid-October. If so, it would be the first deceleration since mid-July. The central bank has been looking through this recent acceleration and has continued cutting rates at 50 bp clips throughout the summer. Next COPOM meeting is December 13 and another 50 bp cut to 11.75% is expected. Elsewhere, the primary surplus is expected at BRL15.4 bln vs. BRL11.5 bln in September. October IP and November trade data will be reported Friday. IP is expected at 1.5% y/y vs. 0.6% in September.

Chile reports October IP and retail sales data Thursday. IP is expected at 0.8% y/y vs. 1.5% in September, while sales are expected at -9.0% y/y vs. -5.4% in September. October GDP proxy will be reported Friday and is expected at 0.4% y/y vs. 0.0% in September. The economy is starting to recover but headwinds remain. No wonder the central bank is cutting rates as quickly as possible. It adjusted to a smaller 50 bp cut in October when the peso was coming under pressure but if the currency remains firm, we expect the bank to move back to a 75 bp cut at the next meeting December 19.

Peru reports November CPI Friday. Headline is expected at 3.86% y/y vs. 4.34% in October. If so, it would be the lowest since July 2021 and nearing the 1-3% target range. The central bank has cut rates 25 bp for three straight meetings and is likely to continue on this pace. Next policy meeting is December 14 and a 25 bp cut to 6.75% is expected.


Bank of Israel meets Monday and is expected to keep rates steady at 4.75%. At the last meeting October 23, the bank kept rates steady and said that the impact of the war was still unknown but stressed that the economy was “strong, stable, and based on solid foundations.” The bank added that "In view of the war, the monetary committee's policy is focusing on stabilizing the markets and reducing uncertainty.” The markets responded well to this message and the shekel bottomed on October 26. Since then, it has appreciated nearly 10% vs. the dollar.

Turkey reports October trade data. A deficit of -$6.7 bln is expected vs. -$5.01 bln in September. Q3 GDP data will be reported Thursday. Growth is expected at 0.8% q/q vs. 3.5% in Q2, while the y/y rate is expected at 5.2% vs. 3.8% in Q2. With the central bank delivering a hawkish surprise last week, markets have adjusted expectations and now see a peak policy rate near 43.50% over the next three months. However, the lira continues to weaken despite the broad rally in EM FX and so more needs to be done.

Poland reports November CPI Thursday. Headline is expected to remain steady at 6.6% y/y. At the last policy meeting November 8, the central bank delivered a hawkish surprise and kept rates steady at 5.75% vs. an expected 25 bp cut. Governor Glapinski said its projections show inflation will drop slowly and will either stay stable or move higher in December. He warned that inflation wouldn’t hit its target until the end of 2025. Next policy meeting is December 6 and another hold seems likely. However, the rather abrupt shift from its earlier dovishness ahead of the elections will surely raise questions about the role of politics in the bank’s policy decisions.


China reports October corporate profits Monday. Official November PMIs will be reported Thursday. Manufacturing is expected to rise a tick to 49.6 while non-manufacturing is expected to rise half a point to 51.1. Caixin reports November manufacturing PMI Friday and is expected to fall two ticks to 49.3. We remain skeptical of any significant recovery in China given the very modest measures taken so far. Of note, Australia’s composite PMI fell to 46.4 in November, the lowest since August 2021, which suggests very little impact from China stimulus.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 2.5%. At the last policy meeting September 27, the bank hiked rates 25 bp to 2.5% but dropped its reference to the need for “further increases” in interest rates going forward. Due to the bank’s modified forward guidance, the swaps market is pricing in steady rates over the next two years. October manufacturing production will be reported Thursday and is expected at -1.5% y/y vs. -6.1% in September.

Bank of Korea meets Thursday and is expected to keep rates steady at 3.5%. At the last meeting October 19, the bank kept rates steady and Governor Rhee warned that it would seriously consider a hike if the Mideast conflict caused inflation expectations to rise more than it expects. Since then, oil prices have fallen nearly 15% and so the bank can afford to take a wait and see approach at this meeting. The swaps market is pricing in steady rates for the next year. Korea also reports October IP Thursday and is expected at 5.9% y/y vs. 3.0% in September. November trade data will be reported Friday. Exports are expected at 5.7% y/y vs. 5.1% in October, while imports are expected at -8.4% y/y vs. -9.7% in October.

Indonesia reports November CPI data Friday. Headline is expected at 2.71% y/y vs. 2.56% in October, while core is expected at 1.97% y/y vs. 1.91% in October. If so, it would be the second straight month of acceleration but would remain in the bottom half of the 2-4% target range. With price pressures still limited, Bank Indonesia continues to focus on stabilizing the rupiah. The weak currency was the main reason behind its hawkish surprise October 19. Next policy meeting is December 21 and if the rupiah remains relatively stable, the bank is likely to keep rates steady at 6.0%.

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