EM FX was mixed last week despite broad dollar weakness against the majors. PEN, BRL, and HUF outperformed while CLP, TRY, and ZAR underperformed. The dollar is likely to remain under pressure this week due to the lack of any major data that might slow the downward momentum. Early January will bring a slew of key economic data that calls the pivot into question. Until then, EM FX and other risk assets are likely to eke out further gains.

AMERICAS

Brazil reports mid-December IPCA inflation and November central government budget data Thursday. Headline is expected at 4.59% y/y vs. 4.84% in mid-November, while a primary deficit of -BRL34.1 bln is expected vs. a BRL18,3 bln surplus in October. If so, inflation would be the lowest since mid-August and back within the 1.75-4.75% target range. Next COPOM meeting is January 31 and another 50 bp cut to 11.25% is expected. At the last meeting December 13, the bank cut rates 50 bp to 11.75% and signaled it would maintain this pace in 2024.

Chile reports November IP and retail sales Friday. The economy remains at risk, which is why the central bank cut rates 75 bp to 8.25% this month vs. 50 bp in October. Next policy meeting is January 31 and if the peso remains firm, another 75 bp cut to 7.5% seems likely. The swaps market is pricing in 175 bp of easing over the next three months followed by another 150 bp over the subsequent three months.

EUROPE/MIDDLE EAST/AFRICA

South Africa reports November money, private sector credit, budget, and trade data Friday. Money and credit growth are slowing due to past SARB rate hikes, but inflation remains stubbornly high. At the last policy meeting November 23, the bank kept rates steady at 8.25% but Governor Kganyago warned “At the current repurchase rate level, policy is restrictive, consistent with the inflation outlook and elevated inflation expectations. Serious upside risks to the inflation outlook remain. In light of these risks, the Committee remains vigilant and stands ready to act should risks begin to materialize.” The vote to hold was unanimous and so the tightening cycle appears to be over. Next meeting is January 25, and no change is expected. However, the swaps market is pricing in 25 bp of tightening over the next three months.

Turkey reports November trade data Friday. A deficit of -$5.9 bln is expected vs. -$6.52 bln in October. If so, the 12-month total would fall to -$109.5 bln, the lowest since December 2022. Of note, the current account moved into surplus in both September and October and should help lower Turkey’s dependence on foreign capital inflows. The swaps market is pricing in 300 bp of tightening over the next three months but we believe more needs to be done to limit inflation and stabilize the lira.

ASIA

Singapore reports November CPI and IP Tuesday. Headline is expected at 3.9% y/y vs. 4.7% in October, while core is expected at 3.2% y/y vs. 3.3% in October. If so, headline would be the lowest since November 2021. While the MAS does not have an explicit inflation target, falling price pressures should allow it to east policy in H1 2024. The January meeting may be too soon and so we look for easing at the April meeting. Elsewhere, IP is expected at 2.2% y/y vs. 7.4% in October.

Korea reports November IP Thursday. IP is expected at 3.4% y/y vs. 1.1% in October. December CPI will be reported Friday. Headline is expected to remain steady at 3.3% y/y while core is expected to fall a tick to 2.9% y/y. If so, headline would remain well above the 2% target. Next Bank of Korea meeting is January 11 and rates are likely to be kept steady at 3.5%. At the last meeting November 30, the bank kept rates steady at 3.5% and Governor Rhee said the current policy rate was sufficiently restrictive and stressed that the bank is not thinking of stimulus at the moment. The swaps market is pricing in 25 bp of easing over the next six months.

China reports official December PMIs Sunday. Manufacturing is expected at 49.5 vs. 49.4 in November while non-manufacturing is expected at 50.5 vs. 50.2 in November. If so, the composite PMI would rise for the first time since September. However, the economy is likely to continue struggling in 2024 and so further easing is expected in the coming months.