EM FX was mixed last week as the dollar put in a mixed performance overall. PEN, BRL, and INR outperformed while CLP, TRY, and THB underperformed. Fed rate cut expectations are likely to support EM FX and the high beta major currencies likely the dollar bloc and Scandies. However, the U.S. data remain robust and so the rate cut expectations will eventually be taken back and that should help the dollar recover.

AMERICAS

Brazil reports November retail sales Wednesday. Sales are expected at 1.5% y/y vs. 0.2% in October. November GDP proxy will be reported Thursday and is expected at 1.90% y/y vs. 1.54% in October. The economy is picking up as past rate cuts work their way through the system. The central bank has cut rates 200 bp already to 11.75%, with more expected. Next COPOM meeting is January 31 and another 50 bp cut to 11.25% is expected.

Colombia reports November IP and retail sales Wednesday. IP is expected at -2.0% y/y vs. -2.2% in October, while sales are expected at -6.0% y/y vs. -11.0% in October. November GDP proxy will be reported Thursday and is expected at 1.0% y/y vs. -0.4% in October. The economy should pick up in 2024 after the central bank started the easing cycle with a 25 bp cut to 13.0% back on December 19. Next meeting is January 31 and another 25 bp cut seems likely of the peso remains firm.

EUROPE/MIDDLE EAST/AFRICA

Israel reports December CPI Monday. Headline is expected at 3.1% y/y vs. 3.3% in November. If so, it would be the lowest since January 2022 and nearing the 1-3% target range. Bank of Israel also releases its minutes Monday. At the January 1 meeting, it started the easing cycle with a 25 bp cut to 4.5% but Governor Yaron warned that “A risky fiscal policy can affect rate decisions moving forward. If the markets perceive that Israel is moving toward a prolonged path of rising debt, it’s likely to lead to increased yields, depreciation and inflation, such that a higher central bank interest rate will be required.” Next policy meeting is February 26, and much will depend on how the shekel is trading. The swaps market is pricing in another 25 bp of easing over the next three months, followed by another 50 bp of easing over the subsequent three months.

Poland reports December core CPI Tuesday. It is expected at 6.9% y/y vs. 7.3% in November. If so, core inflation would be the lowest since March 2022. December PPI will be reported Friday and is expected at -5.8% y/y vs. -4.7% in November. If so, this would be the steepest drop on record. Despite falling price pressures, the central bank has kept rates on hold since a 25 bp cut to 5.75% back on October 4. Next policy meeting is February 7, and no change is expected then. The political drama continues as Prime Minister Tusk said that he will seek ways to probe Governor Glapinski.

ASIA

PBOC is expected to cut its key 1-year MLF rate by 10 bp to 2.40% Monday. However, a handful of analysts polled by Bloomberg look for no change. China reports December IP, retail sales, fixed asset and property investment, and Q4 GDP data Wednesday. IP is expected at 6.8% y/y vs. 6.6% in November, sales are expected at 8.0% y/y vs. 10.1% in November, fixed asset investment is expected to remain steady at 2.9% YTD, and property investment is expected to worsen a tick to -9.5% YTD. GDP is expected at 1.0% q/q vs. 1.3% in Q3, while the y/y rate is expected at 5.2% y/y vs. 4.9% in Q3. The improvement would largely be due to low base effects, as China did not fully reopen until December 2022.

Singapore reports December trade data Wednesday. NODX is expected at 2.6% y/y vs. 1.0% in November. If so, it would be the strongest reading since September 2022 but due largely to low base effects. The economy remains vulnerable as regional trade and activity remain depressed. As such, we expect the MAS to loosen policy at its April meeting. The January meeting seems to soon as inflation remains elevated at 3.6% y/y in November.

Bank Indonesia meets Wednesday and is expected to keep rate steady a 6.0%. At the last meeting December 21, the bank kept rates steady at 6.0%. With regards to rate cuts, Governor Warjiyo was cautious and said, “We may only start to ascertain the risks of exchange rate stability and other risks in the second half of 2024.” He added that the scope for BI easing might open up if the rupiah strengthens more quickly and inflation slows “but we will not rush.” Bloomberg consensus sees steady rates through H1 followed by 25 bp cuts in both Q3 and Q4.

Malaysia reports December trade and Q4 GDP data Friday. Exports are expected at -4.8% y/y vs. -5.9% in November, while imports are expected at 4.0% y/y vs. 1.7% in November. Elsewhere, GDP is expected at 4.3% y/y vs. 3.3% in Q3. If so, this would be the second straight quarterly acceleration to the strongest since Q1. Bank Negara has been on hold since the last 25 bp hike to 3.0% back on May 3. Next meeting is January 24, and no change is expected then. Inflation fell to 1.5% y/y in November, the lowest February 2021. While the bank does not have an explicit inflation target, low price pressures suggest the bank is likely to start an easing cycle later this year. The swaps market is pricing in steady rates over the next three months followed by 25 bp of easing over the subsequent three months.