EM FX was mixed last week despite broad dollar weakness against the majors. PLN, CZK, and PEN outperformed while ZAR, COP, an CLP underperformed. It remains to be seen whether risk appetite can be maintained in the face of robust U.S. economic data and hawkish Fed officials. China data this week is likely to suggest the economy might be stabilizing, but a strong recovery there is unlikely this year. We expect EM FX to remain under pressure near-term.

AMERICAS

Brazil reports mid-February IPCA inflation Tuesday. Headline is expected at 4.53% y/y vs. 4.47% in mid-January. If so, it would be the first acceleration since mid-October and just above the 1.5-4.5% target range. Next COPOM meeting is March 20 and another 50 bp cut to 10.75% is expected. The swaps market is pricing in 150 bp of total easing over the next six months that would see the SELIC rate bottom at 9.75%. Q4 GDP data will be reported Friday. Growth is expected to remain steady at 0.1% q/q, while the y/y rate is expected to pick up two ticks to 2.2%. Brazil reports January central government budget data sometime this week. A primary surplus of BRL79.5 bln is expected vs. -BRL116.2 bln in December.

Banco de Mexico releases its quarterly inflation report Wednesday. We expect the report to lay the groundwork for an eventual cut after minutes from the February 8 meeting tilted dovish and some policymakers expressed concern that policy was too restrictive, and others began talking about rate cuts. Next meeting is March 21 and a 25 bp cut then seems likely. The swaps market is pricing in 75 bp of easing over the next six months, followed by another 100 bp of easing over the subsequent six months. Ahead of that, January trade data will be reported Tuesday.

EUROPE/MIDDLE EAST/AFRICA

Bank of Israel meets Monday and is expected to cut rates 25 bp to 4.25%. However, the market is split as over a third of the analysts polled by Bloomberg see steady rates. At the last meeting January 1, the bank started the easing cycle with a 25 bp cut to 4.5%. However, Governor Yaron warned that fiscal stimulus tied to the war could hinder further easing. The swaps market is pricing in 100-125 bp of total easing over the next 12 months that would see the policy rate bottom between 3.25-3.50%.

National Bank of Hungary meets Tuesday and is expected to cut the base rate 100 bp to 9.0%. Stagnant economic activity and strong disinflationary pressures (CPI inflation slowed to a three-year low of 3.8% y/y in January) leave plenty of room for the MNB to ease aggressively. Indeed, Deputy Governor Barnabas Virag recently said that this week’s rate decision will again be between 75 bp and 100 bp cuts. The swaps market is pricing in 400 bp of total easing over the next 12 months that would see the policy rate bottom at 6.0%.

Turkey reports Q4 GDP data Thursday. Growth is expected to remain steady at 0.3% q/q, while the y/y rate is expected at 3.5% vs. 5.9% in Q3. If so, it would be the weakest y/y gain since Q4 2022. With the economy slowing from previous rate hikes, the central bank has signaled that the tightening cycle is over. However, with real rates deeply negative, we do not think enough has been done to lower inflation and stabilize the lira. The swaps market is pricing in the start of an easing cycle over the next six months. Ahead of GDP, January trade data will be reported Wednesday.

ASIA

Taiwan reports January export orders Tuesday. Orders are expected at -1.1% y/y vs. -16.0% in December. Much of the recent recovery in export orders is due to low base effects, as regional growth and activity remain subdued overall. January IP will be reported Thursday and is expected at 5.95% y/y vs. -3.99% in December. Here too, the improvement is due largely to low base effects. Q4 GDP data will also be reported Thursday, with growth expected to remain steady at 5.10% y/y. With TWD coming under some pressure, we expect the central bank to keep rates steady for the foreseeable future.

Korea reports February trade data Friday. Exports are expected at 1.9% y/y vs. 18.0% in January, while imports are expected at -11.7% y/y vs. -7.8% in January. Much of the recent recovery in exports is due to low base effects, as regional growth and activity remain subdued overall. The key JPY/KRW cross has been falling this year, making Korea’s exports less competitive compared to Japan’s.

China reports official February PMIs Friday. Manufacturing is expected to fall a tick to 49.1 while non-manufacturing is expected to rise a tick to 50.8. Caixin also reports its manufacturing PMI Friday and is expected to fall a tick to 50.7. The PMIs will likely add to evidence of stabilizing economic activity. However, a sustained pick-up in economic growth is unlikely without policies that cause growth to shift from unproductive debt-fueled investment-led growth to consumption. With the PBOC still in easing mode and the Fed staying hawkish, US-China spreads have moved back in the dollar’s favor.

Indonesia reports February CPI Friday. Headline is expected at 2.61% y/y vs. 2.57% in January, while core is expected at 1.73% y/y vs. 1.68% in January. Bank Indonesia just kept rates steady at 6.0% last week, as expected. Governor Warjiyo said rates would be kept steady for “a while” and noted that the bank will likely assess in H2 if there any room for a rate cut. Warjiyo added that with the Fed unlikely to cut rates until H2, rising UST yields are putting pressure on EM currencies, implying limited room right now for BI to cut rates. Bloomberg consensus sees steady rates through H1 followed by 50 bp of easing in Q3 followed by another 25 bp in Q4. Rates are seen bottoming at 4.75% in 2025.

Thailand reports February CPI Friday. Headline is expected at -0.50% y/y vs. -1.11% in January. If so, it would be the fifth straight month of deflation. At the last meeting February 7, the Bank of Thailand left rates steady at 2.5%, as expected. This hold came despite heavy jawboning for a cut this week from Prime Minister Thavisin and Deputy Finance Minister Amornvivat. However, it was a dovish hold as the 7-2 vote saw the first dissents in nearly a year and a half. Those two dissents favored a 25 bp cut and so the bank took the first steps towards starting an easing cycle. The swaps market is pricing in the start of an easing cycle with a 25 bp cut at the next policy meeting April 10.