EM Preview for the Week of November 13, 2022

November 13, 2022

EM FX had a stellar week as the dollar came under broad-based pressure after the better than expected CPI data. KRW, COP, and THB outperformed while BRL, ARS, and TRY underperformed. We caution against overreacting to the data as we continue to believe the Fed is nowhere near pivoting. Risk assets were also boosted last week by some loosening of China’s Covid Zero restrictions. Here too, we caution against getting too excited as the overall policy remains in place even as most other countries have moved on. This week will be key in determining whether dollar weakness will continue or not. Will Fed officials react to the market overreaction? How will U.S. PPI and retail sales data fit into the Fed narrative? Stay tuned.


Several major Latin American countries report GDP data this week. Brazil reports September GDP proxy Monday. Growth is expected at 4.10% y/y vs. 4.86% in August. If so, Q3 growth would average 4.3% y/y vs. 3.2% in Q2 and would be the highest since Q2 2021. However, it won’t report official Q3 GDP data until December 1. Colombia reports Q3 GDP data Tuesday. Growth is expected at 6.4% y/y vs. 12.6% in Q2. If so, it would be the lowest since Q1 2021. Chile reports Q3 GDP data Friday. Growth is expected at 0.2% y/y vs. 5.4% in Q2. If so, it would be the lowest since Q1 2021. Mexico was the first report Q3 and growth came in at 4.2% y/y vs. 2.0% in Q2. This was the highest since Q3 2021. Peru reports Q3 GDP November 22. While some countries are still slowing, the two biggest (Brazil and Mexico) are picking up and so we remain most constructive on this region in terms of 2023 growth.


Several major CEE countries report Q3 GDP Tuesday. Poland GDP growth is expected at 3.4% y/y vs. 5.8% in Q2. If so, it would be the slowest since Q1 2021. Hungary GDP growth is expected at 4.7% y/y vs. 6.5% in Q2. If so, it would be the slowest since Q1 2021. Slovakia and Bulgaria both report next Tuesday. Czech Republic was the first to report Q3 growth earlier this month at 1.6% y/y vs. 3.7% in Q2, and was the slowest since Q1 2021. The CEE region is most vulnerable to recession in Western Europe and so it’s not too surprising that the regional central banks are trying to end their tightening cycles. However, inflation remains very high and so their attempts to stop hiking may be premature. Because of our negative eurozone outlook, we remain least constructive on this region in terms of 2023 growth.

National Bank of Poland published its quarterly inflation report Monday. Last week, it delivered a dovish surprise and kept rates steady at 6.75% vs. an expected 25 bp hike. Governor Glapinski said the cycle is still on pause and has not ended, adding that it’s tough to say when an easing policy may come. October core CPI will be reported Wednesday and is expected at 11.1% y/y vs. 10.7% in September. If so, it would be the highest since January 1999. Headline has accelerated even more to 17.9% y/y in October, the highest since August 1996 and well above the 1.5-3.5% target range. The bank said inflation may peak in Q1 around 19% and expects single digit readings in Q4.

Israel reports October CPI Tuesday. Headline is expected at 4.9% y/y vs. 4.6% in September. If so, it would be the first acceleration since the July peak of 5.20% y/y and further above the 1-3% target range. At the last policy meeting October 3, Bank of Israel hiked 75 bp to 2.75% and saw the rate at 3.5% 12 months ahead. This is more hawkish than the swaps market, which is pricing in a peak policy rate near 3.0% over the next 6 months. Next policy meeting is November 21 and a 50 bp hike to 3.25% is expected. Q3 GDP data will be reported Wednesday. Annualized growth is expected at 2.0% vs. 6.9% in Q2.


People’s Bank of China sets its 1-year MLF rate this week and it is expected to remain steady at 2.75%. China reports October IP and retail sales Tuesday. IP is expected at 5.2% y/y vs. 6.3% in September, while sales are expected at 0.7% y/y vs. 2.5% in September. Last week, the PBOC said it will maintain a reasonable rate of growth in money and credit. In an official notice, the bank said it would step up its support for key sectors to stabilize the economy and to help the recovery of sectors hurt by the pandemic. This comes after weaker than expected October new loan and aggregate financing data were reported. The bank is walking a fine line between stimulus and financial instability as too much credit-fueled activity was the ultimate source of the current property market slump.

India reports October WPI and CPI Monday. WPI is expected at 8.60% y/y vs. 10.70% in September, while CPI is expected at 6.70% y/y vs. 7.41% in September. If so, headline CPI would be the lowest since February and nearing the 2-6% target range. At the last policy meeting September 30, the RBI hiked rates 50 bp to 5.90%. Governor Das did not provide any forward guidance but pledged to “remain alert and nimble.” At the same time, the RBI cut its FY22 growth forecast to 7.0% vs. 7.2% previously and kept its inflation forecast steady at 6.7%. Next policy meeting is December 7 and the bank is likely to shift to smaller 25 bp hikes going forward. Of note, the swaps market is pricing in 75 bp of tightening over the next 6 months that would see the policy rate peak near 6.65%.

Indonesia reports October trade data Tuesday. Bank Indonesia meets Thursday and is expected to hike rates 50 bp to 5.25%. However, a nearly a third of the analysts polled by Bloomberg see a smaller 25 bp hike. At the last policy meeting October 20, the bank hiked rates 50 bp to 4.25%. However, it also extended through 2023 the looser rules on property and vehicle loans in order to boost activity. Since then, October CPI decelerated to 5.71% y/y but remains well above the 2-4% target range. Q3 current account data will be reported Friday.

Philippine central bank meets Thursday and is expected to hike rates 75 bp to 5.0%. At the last policy meeting September 22, the bank hiked rates 50 bp to 4.25%. Governor Medalla said further hikes were likely but added that it won’t match the Fed point by point. He also said the bank has been “quite active” in the FX market and is likely to become even more active to address market volatility. Since that meeting, inflation accelerated to 7.7% y/y in October, the highest since December 2008 and further above the 2-4% target range. The swaps market is pricing in a peak policy rate near 5.75% over the next 3 months.

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