EM Preview for the Week of November 12, 2023

November 12, 2023

EM FX was mostly weaker last week as the dollar mounted a broad-based recovery despite the lack of any major economic data or events. KRW, MYR, and PHP outperformed while CLP, ZAR, and PEN underperformed. We expect data this week to show ongoing economic strength as well as persistent price pressure in the U.S., which should lead markets to reassess the dovish Fed narrative. In turn, this should keep the dollar recovery intact and weigh on risk assets such as EM.


Chile central bank minutes will be released Tuesday. At the October 26 meeting, the bank delivered a hawkish surprise and cut rates 50 bp to 9.0% vs. 75 bp expected. Since then, the peso has gained over 2% vs. the dollar and inflation eased to 5.0% y/y, the lowest since August 2021. Next policy meeting is December 19. Another 50 bp cut seems likely but if the peso remains relatively firm, we think the bank will be tempted to go back to 75 bp.

Colombia reports September IP and retail sales Tuesday. Q3 GDP data will be reported Wednesday. Growth is expected at 0.8% q/q vs. -1.0% in Q2, while the y/y rate is expected at 0.4% y/y vs. 0.3% in Q2. There’s no doubt that the economy is flirting with recession and yet the central bank remains cautious about easing as it just left rates steady October 31 by a 5-2 vote, which was the same margin as the September 29 meeting. Next policy meeting is December 19 and if the peso remains firm, the bank may start the easing cycle then.

Brazil reports September GDP proxy Thursday. Growth is expected at 0.80% y/y vs. 1.28% in August. With the economy slowing, there will be pressure on the central bank to continue easing rates. However, the bank remains cautious and President Campos Neto said “We have enough visibility for the next two meetings. The end-of-cycle rate, regardless of what it will be, needs to be restrictive in the current landscape.” As a result, the market is pricing in 50 bp cuts at the December 13 and January 31 meetings before slowing to 25 bp cuts in March, May, and June. This path would take the policy rate to 10.5% by mid-2024. After that, only one more cut to 10.25% is priced in, which would indeed be very restrictive.


Israel reports October trade data Monday. October CPI will be reported Wednesday, with headline expected to fall a tick to 3.7% y/y. If so, it would be the second straight deceleration but would still be above the 1-3% target range. At the last meeting October 23, the Bank of Israel kept rates steady at 4.75%. Since then, the shekel has gained nearly 6% vs. the dollar. Next meeting is November 27 and if the shekel remains firm and inflation continues to fall, no change is likely then. Q3 GDP data will be reported Thursday, with annualized growth expected at 3.5% vs. 3.1% in Q2.

Poland reports September trade and current account data Monday. Q3 GDP data will be reported Tuesday. Growth is expected at 1.7% q/q vs. -2.2% in Q2, while the y/y rate is expected at 0.4% y/y vs. -0.6% in Q2. October core CPI will be reported Thursday and is expected at 8.0% y/y vs. 8.4% in September. If so, core would be the lowest since April 2022. The central bank delivered a hawkish hold last week when a 25 bp cut was expected. Governor Glapinski said the scope for more cuts is limited as inflation is forecast to drop slowly. The swaps market is pricing in 25 bp of easing over the next three months followed by 25 bp over the subsequent three months.

Hungary reports Q3 GDP data Tuesday. Growth is expected at 1.1% q/q vs. -0.3% in Q2, while the y/y rate is expected at -0.2% y/y vs. -2.4% in Q2. If so, it would be the first positive q/q reading since Q2 2022. October inflation came in at 9.9% y/y, the lowest since April 2022. With the economy weak, we expect the central bank to continue easing aggressively. The swaps market is pricing in 125 bp of easing over the next three months followed by 150 bp over the subsequent three months.


China reports October money and new loan data sometime this week. New loans are expected at CNY655 bln vs. CNY2.31 trln in September, while aggregate financing is expected at CNY1.95 trln vs. CNY4.12 trln in September. PBOC sets its key 1-year MLF rate Wednesday and is expected to remain steady at 2.5%. China also reports October IP, retail sales, FAI, property investment, and residential property sales Wednesday. IP is expected to remain steady at 4.5% y/y, while sales are expected at 7.0% y/y vs. 5.5% in September. Both FAI and property investment are expected to remain steady at 3.1% YTD and -9.1% YTD, respectively. October new home prices will be reported Thursday. We do not think stimulus measures taken so far will have much lasting impact and so look for more in the coming months.

India reports October CPI Monday. Headline is expected at 4.80% y/y vs. 5.02% in September. If so, it would be the lowest since May and well within the 2-6% target range. WPI will be reported Tuesday and is expected at -0.34% y/y vs. -0.26% in September. At the last meeting October 6, the RBI left rates unchanged at 6.5% but Governor Das warned of inflation risks from excess liquidity in the system and said the RBI was considering selling bonds in order to soak up that extra cash. Next meeting is December 8 and if inflation keeps falling, no change is likely then. The swaps market is pricing in some risks of a 25 bp cut over the next three months, but that cut becomes fully priced in over the subsequent three months.

Philippine central bank meets Thursday and is expected to keep rates steady at 6.5%. Since the surprise intra-meeting hike October 26, the peso has strengthened nearly 2% vs. the dollar and inflation has come down to 4.9% y/y, the lowest since July. We see steady rates for the time being. However, the swaps market is pricing in the start of an easing cycle over the next three months.

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