EM Preview for the Week of November 14, 2021

November 14, 2021

Some EM currencies were able to eke out some modest gains last week despite the dollar’s broad-based gains against the majors. BRL, THB, and CLP were the best performers in EM, while HUF, TRY, and RUB were the worst. The Fed has started tapering and market expectations for liftoff continue to move forward. With the dollar thus expected to continue gaining against the majors, we expect most of EM FX to also succumb as higher rates in EM have done little to staunch the bleeding.


Colombia reports September trade and Q3 GDP data Tuesday. Growth is expected at 5.0% q/q vs. -2.4% in Q2. However, price pressures are building as CPI rose 4.58% y/y in October. It has been above the 2-4% target range for three straight months. The central bank just started a tightening cycle in September with a 25 bp hike and followed up with a 50 bp hike in October, and so growth should cool further in Q4 and beyond. Next policy meeting is December 17 and another 50 bp hike seems likely.

Chile reports Q3 GDP and current account data Thursday. The central bank started a tightening cycle in July with a 25 bp hike and followed up with a 75 bp hike in August and a 125 hike in October, and so growth should cool further in Q4 and beyond. Next policy meeting is December 14 and another large hike seems likely. Swaps market sees another 275-300 bp of tightening over the next twelve months. Elsewhere, investors can breathe a sigh of relief that the Senate last week rejected the bill allowing for a fourth round of pension withdrawals, which most feared would add to the overheating economy.


Israel reports October CPI and unemployment Monday. Inflation is expected to pick up a tick to 2.6% y/y. If so, it would be the highest since October 2011 but still within the 1-3% target range. Still, it seems the bank was right to call a halt to its QE at its last meeting, as it will then be in a better position to hike rates next year if needed. Next policy meeting is November 22 and no change is expected then. Q3 GDP will be reported Tuesday, with growth expected to slow to 4.1% annualized from 16.6% in Q2.

National Bank of Hungary meets Tuesday and is expected to hike rates 30 bp to 2.10%. However, the market is completely split. Of the 23 analysts polled by Bloomberg, 2 see a 15 bp hike, 2 see 20 bp, 13 see 30 bp, 2 see 45 bp, 1 sees 50 bp, 2 see 70 bp, and 1 sees 75 bp. CPI rose a whopping 6.5% y/y in October, the highest since and further above the 2-4% target range. The bank started the tightening cycle with a 30 bp hike in June and followed up with two more 30 bp hikes in July and August. It inexplicably slowed to 15 bp hikes in September and October but with inflation accelerating, the bank needs to hike more aggressively and so we see some chance of a hawkish surprise this week. Q3 GDP will be reported that same day, with growth expected at 1.0% q/q vs. 2.7% in Q2.

South Africa reports October CPI and September retail sales Wednesday. Both headline and core inflation are expected to remain steady at 5.0% y/y and 3.2% y/y, respectively, while sales are expected to rise 2.6% m/m vs. 4.9% in August. If so, headline would remain in the upper half of the 3-6% target range. SARB meets Thursday and is expected to keep rates steady at 3.5%. However, the market is split as nearly half the 17 analysts polled by Bloomberg see a 25 bp hike to 3.75%. The bank’s model show a 25 bp hike this year, followed by quarterly 25 bp hikes in both 2022 and 2023. This seems overly aggressive and we believe such an outcome would endanger the optimistic targets set forth in last week’s medium-term budget statement.

Russia reports Q3 GDP data Wednesday. Growth is expected to slow to 4.5% y/y vs. 10.5% in Q2. Oil prices were basically flat in Q3 but have risen sharply in Q4. The central bank started a tightening cycle in March with a 25 bp hike and followed up with 50 bp hikes in April, June, and July and then 100 bp October and 75 bp. Next policy meeting is December 17 and another 50 bp hike seems likely. That is the last hike that Bloomberg consensus sees, though of course this is subject to change.

Turkey central bank meets Thursday and is expected to cut rates 100 bp to 15.0%. Here too, the market is split. Of the 21 analysts polled by Bloomberg, 1 sees a 150 bp cut, 16 see 100 bp, 2 see 50 bp, and 2 see no cut. CPI rose 19.89% y/y in October, the highest since January 2019 and further above the 3-7% target range. The bank surprised markets by starting the easing cycle with a 100 bp cut in September, then followed up with a dovish surprise 200 bp cut in October. As such, we see risks of another dovish surprise this week. USD/TRY breached 10 for the first time ever Friday and further gains are expected as rate cuts continue.


China reports October retail sales and IP Monday. Sales are expected to rise 3.7% y/y vs. 4.4% in September, while IP is expected to rise 3.0% vs. 3.1% in September. The economy is undoubtedly slowing as policymakers continue their efforts at restructuring and reform. While we expect another muddle through, markets should be prepared for ongoing weakness in the economy as we move into 2022. Presidents Xi and Biden are scheduled to speak virtually Monday in an effort to improve relations and avoid any mishaps or misunderstandings.

Indonesia reports October trade data Monday. Bank Indonesia meets Thursday and is expected to keep rates steady at 3.5%. CPI rose 1.66% y/y in October, the highest since May but still below the 2-4% target range. The bank has signaled steady rates for the time being as lower rates would likely put downward pressure on the rupiah. Bloomberg consensus sees no change in H1 and one hike by end-2022. Q3 current account data will be reported Friday.

Singapore reports October trade data Wednesday. NODX are expected to rise 0.6% m/m vs. 1.2% in September. Exports have been slowing in recent months. However, the MAS turned from supporting growth to fighting inflation when it tightened policy last month by increasingly the slope its S$NEER target band slightly. CPI rose 2.5% y/y in September and even though the MAS does not have in explicit inflation target, it’s clear that concerns have risen.

Philippines central bank meets Thursday and is expected to keep rates steady at 2.0%. Governor Diokno said over the weekend that the bank can maintain its accommodative stance for now, noting that inflation is falling and GDP is growing faster than expected. CPI rose 4.6% y/y, the second straight month of deceleration and the lowest since July. However, it remains above the 2-4% target range. The bank Is expected to keep rates steady for the time being, as Bloomberg consensus sees no change in H1 and one hike by end-2022.

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