EM FX was mixed last week despite the broad dollar recovery against the majors. PHP, PEN, and MXN outperformed while BRL, KRW, and CNY underperformed. U.S. data last week were on the soft side but we do not think a December cut is a done deal. This week’s inflation data will be key and any signs of accelerating price pressures would upend the December cut narrative and help boost the dollar. We believe EM FX remains vulnerable.
AMERICAS
Mexico reports November CPI data Monday. Headline is expected at 4.60% y/y vs. 4.76% in October, while core is expected at 3.60% y/y vs. 3.80% in October. If so, headline would basically reverse the October spike but still remain above the 2-4% target range. At the last meeting November 14, Banco de Mexico cut rates 25 bp to 10.25% and signaled more easing to come. Next meeting is December 10 and another 25 bp cut to 10.0% seems likely. Looking ahead, the swaps market is pricing in 150 bp of total easing over the next 12 months. October IP will be reported Thursday and is expected at -0.6% y/y vs. -0.4% in September.
Brazil reports November IPCA inflation Tuesday. Headline is expected at 4.85% y/y vs. 4.76% in October. If so, it would be the third straight month of acceleration to the highest since September 2023 and further above the 1.5-4.5% target range. COPOM then meets Wednesday and is expected to hike rates 75 bp to 12.0%. A few analysts polled by Bloomberg look for a smaller 50 bp hike. Looking ahead, the swaps market is pricing in 450 bp of total tightening over the next 12 months that would see the policy rate peak near 15.75%. October retail sales data will be reported Thursday and are expected at 5.0% y/y vs. 2.1% in September. October GDP proxy will be reported Friday and is expected at 6.3% y/y vs. 5.1% in September.
Peru central bank meets Thursday and is expected to keep rates steady at 5.0%. However, three of the ten analysts polled by Bloomberg look for a 25 bp cut to 4.75%. At the November 7 meeting, the bank cut the policy rate 25 bp to 5.0%. The analyst community was split 50-50 between no cut and a 25 bp cut. However, the bank signaled that the scope to ease policy further was limited as “the real interest rate is approaching the level estimated as neutral.” The bank added that the rate decision “does not necessarily imply successive reductions in the interest rate.” Since then, November headline and core inflation have picked up modestly and so a pause may be in order.
EUROPE/MIDDLE EAST/AFRICA
Hungary reports November CPI data Tuesday. Headline is expected at 3.7% y/y vs. 3.2% in October. If so, it would be the second straight month of acceleration to the highest since July and nearing the top of the 2-4% target range. At the last meeting November 19, the bank kept rates steady at 6.5% and Deputy Governor Virag said the bank was prepared to keep rates steady for a “sustained period.” Next meeting is December 17 and no change is expected. The swaps market sees one last 25 bp cut over the next 12 months but if the forint remains weak, we believe the easing cycle has likely ended.
Czech Republic reports November CPI data Tuesday. Headline is expected at 3.0% y/y vs. 2.8% in October. If so, it would continue the acceleration off the June low of 2.0% to the highest since December 2023 and right at the top of the 1-3% target range. At the last meeting November 7, the bank cut rates 25 bp to 4.0% and Governor Michl warned that it would be very cautious with further cuts. Since then, Michl has focused on core inflation and noted “That’s why we are very likely to pause the process of lowering interest rates soon. We will choose stability of interest rates for some time, assess the new forecast with a goal to bring core inflation slightly below 2% and the overall inflation to the target.” Next meeting is December 19 and no change is expected. Looking ahead, the swaps market is pricing in 50 bp of total easing over the next 12 months.
South Africa reports November CPI data Wednesday. Headline is expected at 3.1% y/y vs. 2.8% in October, while core is expected to fall a tick to 3.8% y/y. If so, headline would accelerate for the first time since February and move back to just within the 3-6% target range. Ahead of that, November PPI will be reported Tuesday and is expected at 0.2% y/y vs. -0.7% in October. At the last meeting November 21, the South African Reserve Bank cut rates 25 bp to 7.75% and Governor Kganyago said, “As a central bank in a small, open economy, caution is what going be at play here.” Its model also adjusted the expected rate path high, with the end-2025 policy rate seen at 7.40% vs. 7.17% previously, end-2026 at 7.27% vs. 7.09% previously, and end-2027 at 7.28%. The swaps market is slightly more dovish and sees the policy rate bottoming at 7.0%. Either way, it would be a relatively shallow easing cycle and could help support the rand. Next meeting is January 30 and another 25 bp cut to 7.5% seems likely.
ASIA
China reports November new loan and money supply data sometime this week. New loans are expected at CNY995 bln vs. CNY500 bln in October, while aggregate financing is expected at CNY2.565 trln vs. CNY1.396 trln in October. The expected pickup reflects the likely impact of the People’s Bank of China’s pump-priming measures since late-September. November CPI and PPI data will be reported Monday. CPI is expected to pick up a tick to 0.4% y/y, while PPI is expected to pick up a tick to -2.8% y/y. Overall, China’s economy is still struggling to escape deflationary risks. Trade data will be reported Tuesday. Exports are expected at 8.9% y/y vs. 12.7% in October, while imports are expected at 0.7% y/y vs. -2.4% in October. The annual closed door Central Economic Work Conference will be held Wednesday and Thursday. At that conclave, the GDP growth target and stimulus plans for 2025 are set.
India reports November CPI and October IP Thursday. Headline inflation is expected at 5.54% y/y vs. 6.21% in October, while IP is expected at 3.6% y/y vs. 3.1% in September. If so, headline would basically retrace the October spike and move back within the 2-6% target range. Last week, the RBI delivered a dovish hold as the vote split to hold shifted to 4-2 from 5-1 at the last meeting October 9, with the dissents in favor of a 25 bp cut. Furthermore, the RBI unexpectedly cut the cash reserve ratio 50 bp to 4.0%. Governor Das said that “At this critical juncture, prudence and practicality demand that we remain careful and sensitive to the dynamically evolving situation,” but added that if the economy slows further, “it may need policy support.” Next RBI meeting is February 7. The swaps market is pricing in 50-50 odds of a 25 bp cut over the next three months but has fully priced in 50 bp of easing over the next twelve months. Of note, the RBI will allow local banks to offer higher deposit rates to non-resident Indians, which is an effort to attract inflows and signals some concern about the weak rupee.
