EM Preview for the Week of January 8, 2023

January 08, 2023

EM FX was mixed last week as markets were whip-sawed by large swings in Fed tightening expectations. MXN, THB, and CLP outperformed while ARS, PLN, and IDR underperformed. We continue to believe markets are putting too much weight on a potential Fed pivot and underestimating the Fed’s capacity to tighten in 2023. With the global liquidity and growth story still very much negative for risk assets, we remain defensive on EM.


Mexico reports December CPI Monday. Headline is expected at 7.84% y/y vs. 7.80% in November, while core is expected at 8.35% y/y vs. 8.51% in November. If so, headline would accelerate for the first time since August while core would decelerate for the first time since November 2020. At the last policy meeting December 15, Banco de Mexico hiked rates 50 bp to 10.50% and said “The Board considers it will still be necessary to raise the reference rate in its next monetary policy meeting” February 9. It added that “Subsequently, it will assess if the reference rate needs to be further adjusted as well as the pace of adjustments based on the prevailing conditions.” While the market is pricing in 25 bp, we expect another 50 bp hike to 11.0% next month. The swaps market is pricing in a peak policy rate near 11.0% but much will depend on how inflation develops and also on Fed policy. November IP will be reported Wednesday.

Brazil reports December IPCA inflation Tuesday. Headline is expected at 5.58% y/y vs. 5.90% in November. If so, it would be the lowest since February 2021 and moving closer to the new target of 1.75-4.75%. At the last policy meeting December 7, COPOM left rates steady at 13.75%. However, the tone was hawkish as it reiterated that rates will be kept steady for “a sufficiently long period” and that it will not hesitate to resume hiking rates if inflation doesn’t slow as planned. The swaps market is pricing in 25 bp of tightening over the next six months to a peak near 14.0% but much will depend on Lula’s fiscal policy going forward. November retail sales will be reported Wednesday. November GDP proxy will be reported Friday.

Peru central bank meets Thursday and is expected to hike rates 25 bp to 7.75%. CPI rose 8.46% y/y in December. While inflation has fallen from the 8.81% peak in June, the process has been uneven and inflation remains well above the 1-3% target range. Since September, the bank has been hiking at a 25 bp clip every month. At the last meeting December 7, the bank hiked rates 25 bp even as the nation was reeling from Castillo’s attempted coup attempt. Bloomberg consensus sees the policy rate peaking at 7.75% but we think much will depend on how the data evolve.


Hungary reports November IP and trade data Monday. December CPI will be reported Friday. Headline is expected at 25.8% y/y vs. 22.5% in November. If so, it would be the highest since February 1996 and further above the 2-4% target range. Yet at the last policy meeting December 20, the central bank kept the bank rate steady at 13.0%. However, it downplayed any notions of easing as Deputy Governor Virag counseled “patience,” and added that the central bank first had to see a “trend improvement” in inflation risks before cutting rates. Despite the hawkish tone, the swaps market is still pricing in an easing cycle in Q1 but we think that remains highly unlikely.

Turkey reports November IP Tuesday. It is expected at -2.0% y/y vs. 2.5% in October. November current account data will be reported Wednesday and a deficit of -$4.05 bln is expected vs. -$360 mln in October. If so, the 12-month total would rise to -$45.4 bln vs. -$43.5 bln October and would be the highest since August 2018. With the budget deficit also widening out, we believe Turkey is heading towards an economic crisis as interest rates remain too low to adequately finance these deficits.

Czech Republic reports December CPI Wednesday. Headline is expected to fall a tick to 16.1% y/y. If so, it would resume the deceleration from the 18.0% peak in September but would remain well above the 1-3% target range. The central bank has left rates steady at 7.0% since August on the assumption that policy is tight enough to bring inflation down. At the last policy meeting December 21, the bank said there was no discussion of cutting rates and that it cannot rule out further tightening if risks materialize. The swaps market is pricing in a possible 25 bp hike in Q1 followed by easing in Q2 but a rate cut so soon seems very unlikely. November retail sales will be reported Thursday.

Russia reports December CPI Friday. Headline is expected at 12.10% y/y vs. 11.98% in November. If so, it would be the first acceleration since April, when it peaked at 17.83% y/y. At the last policy meeting December 16, the central bank left rates steady at 7.5%, the second straight hold after six straight cuts took the policy rate from 20.0% to 7.5%. Governor Nabiullina said then that the bank was sending a “neutral signal” and that future decisions remain “data-dependent” but warned that “Due to a growing shortage of personnel, companies’ labor costs are increasing.” The bank noted that ““Current consumer prices are growing at a moderate rate, and consumer demand is subdued. At the same time, pro-inflation risks are up and prevail over disinflationary risks” and that “the capacity to expand production in the Russian economy is largely limited by the labor market conditions.”


China reports December money and loan data sometime this week. New loans are expected at CNY1.09 trln vs. CNY1.21 trln in November, while aggregate financing is expected at CNY1.58 trln vs. CNY1.99 trln in November. December CPI and PPI data will be reported Thursday. CPI is expected at 1.8% y/y vs. 1.6% in November, while PPI is expected at -0.1% y/y vs. -1.3% in November. December trade data will be reported Friday. Exports are expected at -12.0% y/y vs. -8.9% in November, while imports are expected at -10.0% y/y vs. -10.6% in November. The economy is clearly suffering from both domestic and global headwinds and so further stimulus is expected in Q1.

Korea reports November current account data Tuesday. Bank of Korea meets Friday and is expected to hike rates 25 bp to 3.5%. At the last policy meeting November 24, the bank hiked rates 25 bp to 3.25%. Three policymakers favored a terminal rate of 3.5%, while two were open to going above 3.5% and one believed no more hikes are needed. Governor Rhee stressed it was premature to discuss rate cuts and that the bank will need strong evidence of inflation moving to its target before easing can be discussed. The swaps market is pricing in a peak policy rate near 3.25% but we think this is too low.

India reports December CPI and November IP Thursday. Headline is expected at 5.80% y/y vs. 5.88% in November. If so, it would be the third straight month of deceleration. It would be the lowest since December 2021 and further within the 2-6% target range. At the last policy meeting December 7, the Reserve Bank of India hiked the repo rate 35 bp to 6.25% by a 5-1 vote. Governor Das said “Growth in India remains resilient and inflation is expected to moderate. But the battle against inflation is not over.” While the size of the hike was reduced from 50 bp in September, the tone was decidedly on the hawkish side and so the tightening cycle will continue. The swaps market is pricing in a peak policy rate between 6.75-7.0%. December trade data will be reported Friday.

More from Mind on the Markets

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved..

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction