EM FX was mixed last week despite broad dollar losses against the majors. PLN, CZK, and RON outperformed while BRL, ARS, and TRY underperformed. Recent U.S. data have come in mostly firmer and so we attribute the dollar’s weakness last week to profit-taking after an extended rally. Indeed, DXY weakened on a weekly basis for the first time since late September and so some consolidation is to be expected. That said, we expect the data this week to show that the global divergences favoring the dollar will continue.
AMERICAS
Brazil reports Q3 GDP data Tuesday. Growth is expected at 0.8% q/q vs. 1.4% in Q2, while the y/y rate is expected at 3.9% vs. 3.3% in Q2. October IP will be reported Wednesday and is expected at 6.3% y/y vs. 3.4% in September. Despite a solid economic outlook, Brazil assets took a big hit last week due to disappointment with the fiscal spending package. With fiscal policy remaining loose, the central bank will likely have to tighten monetary policy more than it otherwise would. Indeed, the swaps market is now pricing in a terminal policy rate of 15.0% vs. 13.5% in early November. This has done nothing to support the real, which tumbled to an all-time low above 6 last week.
Chile reports November CPI data Friday. Headline is expected at 4.2% y/y vs. 4.7% in October. If so, it would nearly reverse last month’s jump and move closer to the 2-4% target range. At the last meeting October 17, the central bank cut rates 25 bp to 5.25% and said, “The key rate will see further reductions to meet its neutral level” whilst adding that this will occur at a pace that will consider the evolution of the macroeconomic scenario and its implications for inflation’s trajectory.” Next meeting is December 17 and another 25 bp cut to 5.0% seems likely. The swaps market is pricing in a terminal rate of 4.5% over the next 12 months. Ahead of the CPI data, October GDP proxy will be reported Monday.
Colombia reports November CPI data Friday. Headline is expected at 5.10% y/y vs. 5.41% in October, while core is expected at 5.77% y/y vs. 6.29% in October. If so, headline would be the lowest since October 2021 but still well above the 2-4% target range. At the last meeting October 31, the central bank cut rates 50 bp to 9.75% and Governor Villar noted that “Today’s interest rate cut continues to support economic growth and maintains the necessary prudence given the inflation risks that remain.” Next meeting is December 20 and another 50 bp cut to 9.25% seems likely. The swaps market is pricing in 200 bp of total easing over the next 12 months that would see the policy rate bottom near 7.75%.
EUROPE/MIDDLE EAST/AFRICA
Turkey reports November CPI data Tuesday. Headline is expected at 46.55% y/y vs. 48.58% in October, while core is expected at 47.20% y/y vs. 47.75% in October. If so, headline would be the lowest since June 2023. At the last meeting November 21, the central bank kept rates steady at 50.0%. However, the bank opened the door for less restrictive policy settings in the near future as it noted that the slowdown in domestic demand indicators is “reaching disinflationary levels” and “signs for an improvement in services inflation have become more apparent.” Next meetings are December 26 and January 23 and a cut is possible at one of these meetings if inflation continues to ease. The market is still pricing in 650 bp of easing over the next three months.
National Bank of Hungary releases its minutes Wednesday. At the November 19 meeting, the bank kept rates steady at 6.5% and Deputy Governor Virag said that geopolitical tensions, market volatility, and inflation risks warranted a cautious approach to monetary policy. He added that the central bank is ready to keep rates steady for a “sustained period.” Next meeting is December 17 and no change is expected. However, the swaps market is pricing in 50 bp of easing over the next 12 months. Of note, Prime Minister Orban nominated Finance Minister Varga to head up the central bank starting in March, when current Governor Matolcsy’s second and final term ends. October retail sales will be reported Thursday. IP will be reported Friday.
National Bank of Poland meets Wednesday and is expected to keep rates steady at 5.75%. Governor Glapinski holds his post-decision press conference Thursday. Minutes from the November 6 meeting will be published Friday. At that meeting, the bank kept rates on hold and Governor Glapinski stressed that rate cut discussions were unlikely before March 2025. The market is pricing in 50 bp of easing over next six months followed by another 75 bp of easing over the subsequent six months.
ASIA
Caixin reports November PMIs this week. Manufacturing will be reported Monday and is expected at 50.6 vs. 50.3 in October. Caixin services and composite PMIs will be reported Wednesday, with services expected at 52.4 vs. 52.0 in October. Over the weekend, officials PMIs were mixed. Manufacturing came in a tick higher than expected at 50.3 vs. 50.1 in October, while non-manufacturing came in three ticks lower than expected at 50.0 vs. 50.2 in October. As a result, the official composite was unchanged at 50.8. Despite the stimulus measures seen so far, we do not expect much impact on the economic outlook.
Indonesia reports November CPI data Monday. Headline is expected at 1.50% y/y vs. 1.71% in October, while core is expected at 2.20% y/y vs. 2.21% in October. At the last meeting November 20, Bank Indonesia kept rates steady at 6.0%. Governor Warjiyo acknowledged that “The room for rate cuts that we previously saw as wide does seem narrower now.” He added that “If we consider the low domestic inflation and the need to boost economic growth, of course there is still room for rate cuts. But with the rapid development of global dynamics, the focus of our monetary policy remains directed at strengthening rupiah stability against global geopolitical and economic uncertainties.” Next meeting is December 18 and another hold seems likely.
Korea reports November CPI data Tuesday. Headline is expected at 1.7% y/y vs. 1.3% in October, while core is expected at 1.9% y/y vs. 1.8% in October. If so, headline would accelerate for the first time since July but would remain below the 2% target. The Bank of Korea delivered a dovish surprise last week and cut rates 25 bp to 3.0%. Governor Rhee said that “Our decision can be interpreted as an acceleration of easing to deal with downward economic risks that are growing larger than we expected. Among the biggest changes since August is the Red Sweep in the US, which was bigger than we forecast.” The swaps market is now pricing in a terminal rate of 2.25% vs. 2.5% before the decision. Q3 GDP data will be reported Thursday.
Philippines reports November CPI data Thursday. Headline is expected at 2.5% y/y vs. 2.3% in October. If so, it would be the highest since August but still well within the 2-4% target range. At the last meeting October 16, the central bank cut rates 25 bp to 6.0%. Governor Remolona said that another 25 bp cut in December was possible but noted that a 50 bp cut would be “too aggressive.” He added that “We prefer to take baby steps in terms of adjusting the policy rate, meaning 25 bp at a time - but not necessarily every quarter or not necessarily every meeting. Lastly, Remolona said that while another 100 bp of easing is possible, it would be on the “dovish side.” The swaps market disagrees and is pricing in 175 bp of total easing over the next 12 months. Next meeting is December 19 and another 25 bp cut to 5.75% seems likely.
Thailand reports November CPI data Friday. Headline is expected at 1.10% y/y vs. 0.83% in October, while core is expected to remain steady at 0.77% y/y. If so, headline would be the highest since April 2023 and back within the 1-3% target range. At the last meeting October 16, the central bank cut unexpectedly rates 25 bp to 2.25%. The vote was 5-2, with the two dissents in favor of steady rates. The bank stressed that the cut was a “recalibration” and not the start of an easing cycle. The swaps market disagrees and is pricing in 50 bp of easing over the next 12 months. Next meeting is December 18 and another 25 bp is possible.
Reserve Bank of India meets Friday and is expected to keep rates steady at 6.5%. At the last meeting October 9, the central bank kept rates steady. The vote was 5-1 to keep rates on hold, with the dissent in favor of a 25 bp cut. However, the bank voted to move its stance to “neutral” from “withdrawal of accommodation” previously. Governor Das warned that “It is with a lot of effort that the inflation horse has been brought to the stable. We have to be very careful about opening the gate as the horse may simply bolt again.” The swaps market is fully pricing in a 25 bp cut over the next three months, followed by another 50 bp of easing over the subsequent nine months.
