EM FX was mostly softer last week as the broad dollar continued. MXN, PEN, and INR outperformed while ZAR, HUF, and COP underperformed. Contrast the Fed’s hawkish cut with dovish holds from the BOJ and BOE last week, as well as recent rate cuts from the SNB, BOC, Riksbank, Mexico, and Colombia. With monetary policy divergences still widening, the dollar rally is likely to continue well into 2025.
AMERICAS
Mexico reports mid-December CPI data Monday. Headline is expected at 4.40% y/y vs. 4.55% previously, while core is expected at 3.59% y/y vs. 3.57% previously. Last week, Banco de Mexico cut rates 25 bp to 10.0% by a unanimous decision, though nearly a quarter of the analysts looked for a larger 50 bp move. However, it noted “The Board expects that the inflationary environment will allow further reference rate reductions. In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance.” Despite the dovish guidance, the swaps market is pricing in only 100 bp of easing over the next 12 months that would see the policy rate bottom near 9.0%. November trade and October GDP proxy will also be reported Monday.
Colombia central bank publishes its minutes Thursday. At last week’s meeting, the bank delivered a hawkish surprise and cut rates 25 bp to 9.5% vs. 50 bp expected. The vote was 5-2, with one dissent in favor of a 50 bp move and another one in favor of a 75 bp move. Governor Villar said the weak peso and hawkish Fed guidance were behind the “prudent” cut. The swaps market is pricing in 175 bp of total easing over the next 12 months that would see the policy rate bottom near 7.75%.
Brazil reports mid-December IPCA inflation Friday. Headline is expected at 4.82% y/y vs. 4.77% in mid-November. If so, it would be the highest since mid-November 2023 and move further above the 1.5-4.5% target range. The swaps market is pricing in 375 bp of tightening over the next 12 months that would see the policy rate peak near 1600%. Ahead of that, November current account and FDI data will be reported Monday. Lastly, November central government budget data will also be reported Friday. A primary deficit of -BRL6.5 bln is expected vs. a primary surplus of BRL40.8 bln in October. Until the fiscal outlook improves, we believe Brazil assets will remain under pressure.
EUROPE/MIDDLE EAST/AFRICA
Turkey central bank meets Thursday and is expected to cut rates 175 bp to 48.25%. However, the market is all over the place. Of the 18 analysts polled by Bloomberg, 2 see no change, 7 see a 150 bp cut, 2 see 200 bp, 6 see 250 bp, and 1 sees 300 bp. At the last meeting November 21, the central bank kept rates steady at 50.0%. However, the bank opened the door for the start of an easing cycle 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.” In December, headline CPI inflation slowed to a 16-month low of 47.09% y/y and core CPI inflation eased to a 17-month low of 47.13% y/y. The market is now pricing in 725 bp of easing over the next three months.
ASIA
People’s Bank of China sets its 1-year MLF rate sometime this week. It is expected to be kept steady at 2.0%. However, policymakers have signaled further monetary easing in 2025. November industrial profits will be reported Friday.
Singapore reports November CPI data Monday. Headline is expected at 1.8% y/y vs. 1.4% in October, while core is expected to remain steady at 2.1% y/y. If so, it would be the first acceleration in headline since May. While the MAS does not have an explicit inflation target, relatively low price pressures should allow it to ease policy in 2025 if the economy slows too much. November IP will be reported Thursday and is expected at 9.8% y/y vs. 1.2% in October.
