EM Preview for the Week of December 19, 2021

December 19, 2021

EM is coming off of a tough week. Most EM currencies were down, with TRY, COP, and BRL the worst performers. Some were able to eke out small gains, with PHP, ZAR, and PEN the best performers. MSCI EM is trading near the November low for the year. The news for EM last week was not good, with the Fed tapering faster and signaling three hikes in 2022, the ECB starting tapering, and the BOE starting its tightening cycle. The global liquidity story has turned against EM and so next year will be a difficult one.


Colombia central bank releases its minutes Tuesday. Last week, the bank hiked rates 50 bp to 3.0%, as expected. The vote was split 4-3, with the 3 dissents in favor of a larger 75 bp move. The bank noted that “Inflation expectations have increased above the 3% target. That risks inducing an indexation process that would lead to higher inflation levels.” Governor Villar added that “We have to continue adjusting upwards to bring it to a more neutral level, closer to monetary normality” This suggests that the tightening cycle will continue for some time yet. Next policy meeting is January 28 and another 50 bp hike is likely then, with risks of a larger 75 bp move.

Brazil reports November current account and FDI data Wednesday. It reports mid-December IPCA inflation Thursday, with headline inflation expected at 10.45% y/y vs. 10.73% in mid-November. If so, this would be the first deceleration since mid-June 2020. However, it would remain well above the 2.25-5.25% target range, which drops down to 2-5% in 2022. After hiking rates 150 bp to 9.25% at the last meeting, COPOM pledged another hike of similar magnitude at the next meeting February 2. The central bank just raised its estimate for the neutral real policy rate from 3.0% to 3.5% due to inflation risks coming from fiscal policy, suggesting rate hikes are likely to continue for the time being. Swaps market sees the policy rate peaking at 12.50% by mid-2022 before falling slightly in H2 22.

Mexico reports mid-December CPI Thursday. Headline inflation is expected at 7.70% y/y vs. 7.05% in mid-November. If so, it would be the highest since January 2001 and further above the 2-4% target range. Last week, Banco de Mexico delivered a hawkish surprise with a 50 bp hike to 5.50%. The vote was 4-1, with the dissent in favor of a smaller 25 bp move. Next policy meeting is February 10 and another 50 bp hike to 6.0% seems likely if price pressures remain high, Swaps market sees the policy rate peaking at 7.50% by end-2022 before falling slightly in 2023. November trade data will be reported Friday.


Poland reports November PPI and IP data Monday. The former is expected at 13.0% y/y vs. 11.8% in October, while the latter is expected at 8.2% y/y vs. 7.8% in October. Real retail sales and construction output will be reported Tuesday, with sales expected at 8.4% y/y vs. 6.9% in October. The central bank just delivered a consensus 50 bp hike to 1.75% at the December 8 meeting, but said future moves would depend on incoming data. CPI rose 7.8% y/y in November, the highest since December 2000 and further above the 1.5-3.5% target range. Next policy meetings are January 12, February 8, and March 8. Swaps market is pricing in 100 bp of tightening in Q1 but we think this understates the case as the bank is falling further behind the curve and needs to take more aggressive action.

Czech National Bank meets Wednesday and is expected to hike rates 75 bp to 3.50%. A couple of analysts look for a smaller 50 bp move, while one looks for a bigger 100 bp move. CPI rose 6.0% y/y in November, the highest since October 2008 and further above the 1-3% target range. At the last meeting November 4, the bank delivered a hawkish surprise with a 125 bp hike to 2.75%. Governor Rusnok said then that smaller rates would be seen going forward. Since that meeting, he said he sees rates closer to 4% than 3% in 2022. Of note, the swaps market sees a terminal rate of 3.75% in H1 before falling to 3.5% by end-2022 and then 2.5-2.75% by end-2033. We think this understates the case and that the bank will need to hike more to stabilize inflation.

Russia reports November IP and PPI Wednesday. The former is expected at 5.8% y/y vs. 7.1% in October, while the latter is expected at 27.0% y/y vs. 27.5% in October. Last week, the central bank hiked rates 100 bp to 8.5% and flagged another hike in the coming meetings. Meanwhile, tensions with the West are likely to remain high after NATO rejected a Russian proposal that it would not offer membership to Ukraine and any other states and to withdraw all military infrastructure placed in Eastern Europe after 1997. In related news, the U.S. Senate will vote next month on a bill that would limit President Biden’s ability to waive sanctions on the Nord Stream 2 pipeline.


Taiwan reports November export orders Monday. Orders are expected at 5.4% y/y vs. 14.6% in October. If so, this would be the second straight month of deceleration and the slowest since May 2020. If orders continue to slow, then the outlook for H2 22 will weaken further. The central bank just left rates steady but raised the possibility of a rate hike in 2022. Much will depend on how the economic outlook develops but recent forward-looking indicators (export orders, leading index) have been softening and so some caution is warranted. IP will be reported Thursday and is expected at 11.05% y/y vs. 11.25% in October.

Korea reports trade data for the first 20 days of December Tuesday. Exports rose 20.4% y/y in the first 10 days of December, due in large part to a strong 26.5% gain in chip shipments. Imports jumped 42.3% y/y in the first 10 days of December. Bank of Korea Governor Lee said the bank will continue to concentrate on domestic conditions as it normalizes policy, playing down concerns that it would have to match the Fed’s tightening cycle. He said it will continue to normalize policy at an appropriate pace, considering growth, inflation, and financial imbalances. He added that the bank has “significant room” to be flexible in its policy given that it has already hiked twice, but added that it isn’t ruling out another rate hike in Q1 22. CPI rose 3.7% y/y in November, the highest since December 2011 and nearly double the 2% target. No change is expected at the next meeting January 14, but a hike could come at the February 24 meeting.

Bank of Thailand meets Tuesday and is expected to keep rates steady at 0.50%. CPI rose 2.71% y/y in November, the highest since February 2013 and nearing the top of the 1-3% target range. At the last meeting November 10, the bank said that its accommodative policy will continue to support growth and that inflation is expected to remain within its target range. This time, the bank may acknowledge rising inflation risks but we expect the dovish stance to be maintained. Reports suggest policymakers are mulling a 0.1% tax on every stock trade for investors with total monthly turnover of THB1 mln ($29,967) in an effort to boost government revenue.

Singapore reports November CPI Thursday. Headline inflation is expected at 3.4% y/y vs. 3.2% in October, while core is expected to remain steady at 1.5% y/y. While the MAS does not have an explicit inflation target, rising price pressures led it to tighten policy at the October meeting with a slightly steeper slope for its targeted S$NEER trading band. Next meeting is in April and much will depend on how regional growth and trade are holding up in the wake of omicron. For now, the MAS is focused on limiting inflation but it may have to pivot back to supporting growth if the variant impacts activity. IP will be reported Friday and is expected at 14.5% y/y vs. 16.9% in October.

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