EM FX was mixed last week. BRL, HUF, and CLP outperformed while COP, ARS, and IDR underperformed. EM was in a tug of war between rumors of China reopening and an extremely hawkish Fed. When all is said and done, we remain defensive on EM. We do not believe China will jettison Covid Zero anytime soon, while the U.S. jobs report Friday should keep the Fed in hawkish mode.

AMERICA

Chile reports October trade data Monday. CPI will be reported Tuesday, with headline expected at 13.3% y/y vs. 13.7% in September. If so, it would be the second straight month of deceleration from the 14.1% peak in August but still well above the 2-4% target range. Still, it would validate the central bank’s decision to end the tightening cycle last month with a final 50 bp hike to 11.25%. Next policy meeting is December 6 and rates are likely to be kept steady. The swaps market is pricing in the start of the easing cycle in Q2 but that seems too soon.

Brazil reports September retail sales Wednesday. Sales are expected at 2.4% y/y vs. 1.6% in August. October IPCA inflation will be reported Thursday, with headline expected at 6.38% y/y vs. 7.17% in September. If so, it would be the lowest since March 2021 and moving closer to the 2-5% target range. The tightening cycle has clearly ended and the market is currently pricing in Q2 for the start of the easing cycle. However, this may be too soon as the central bank remains cautious. Last week, BCB Monetary Policy Director Bruno Serra warned “We need to bring prices of services back to where they were before the pandemic. If we want inflation anchored at 3% by 2024, we need a services deflation.”

Mexico reports October CPI Wednesday. Headline is expected at 8.47% y/y vs. 8.70% in September, while core is expected at 8.42% y/y vs. 8.28% in September. If so, it would be the first deceleration in headline since May though it remains well above the 2-4% target range. More importantly, the bank will likely focus on the continued acceleration in core inflation to the highest since 2000. Bank de Mexico meets Thursday and is expected to hike rates 75 bp to 10.0%. The swaps market is pricing in a peak policy rate near 10.75%. September IP will be reported Friday and is expected at 4.6% y/y vs. 3.9% in August.

Peru central bank meets Thursday and is expected to hike rates 25 bp to 7.25%. However, the market is split as nearly a third of the analysts polled by Bloomberg see steady rates. At the last policy meeting October 6, the bank hiked rates 25 bp but last week, central bank chief Velarde said “We are at the end, but that does not mean that we are not going to lift, it depends on the data completely.” Inflation does seem to be turning but at 8.28% y/y, it remains well above the 1-3% target range and so we believe the bank is likely to hike this week.

EUROPE/MIDDLE EAST/AFRICA

Czech Republic reports September construction and industrial output and trade data Monday. Retail sales will be reported Tuesday. October CPI will be reported Thursday and headline inflation is expected at 17.9% y/y vs. 18.0% in September. If so, it would mark a deceleration from the cycle high but would still be well above the 1-3% target range. The central bank just kept rates steady at 7.0% last week, claiming that this level will tame demand pressures even as it forecast inflation reaching 20% by year-end. The swaps market is pricing in no more rate hikes but that will depend on whether disinflation is sustained. We have our doubts. Next policy meeting is December 21 and no change is expected then.

Hungary reports September IP and retail sales Tuesday. IP is expected at 8.7% y/y vs. 9.3% in August, while sales are expected at 1.5% y/y vs. 2.4% in August. October CPI and September trade data will be reported Wednesday. Headline inflation is expected at 20.9% y/y vs. 20.1% in September. If so, it would be the highest since October 1996 and further above the 2-4% target range. Central bank minutes will also be released Wednesday. At the October 25 meeting, the bank kept rates steady at 13.0% for the second straight meeting. However, it introduced a new overnight facility paying 18% in mid-October to help support the slumping forint. Next policy meeting is November 22 and no change is expected if the forint remains firm.

National Bank of Poland meets Wednesday. Market are split as nearly half the analysts polled by Bloomberg look for no hike and the rest look for a 25 bp hike to 7.0%. Minutes from its October 5 meeting will be released Thursday. At that meeting , the bank delivered a dovish surprise and kept rates steady at 6.75% vs. an expected 25 bp hike to 7.0%. The bank noted that “A further slowdown of GDP growth is forecast for the coming quarters, while the economic outlook is subject to significant uncertainty.” Since then, CPI has come in much higher than expected at 17.9% in October, the highest since September 1996 and further above the 1.5-3.5% target range. The swaps market is now pricing in 75 bp of tightening over the next 12 months that would see the policy rate peak near 7.5%.

ASIA

China reports October new loan and money data sometime this week. New loans are expected at CNY800 bln vs. CNY2.5 trln in September, while aggregate financing is expected at CNY1.6 bln vs. CNY3.5 trln in September. Foreign reserves and trade data will be reported Monday. Exports are expected at 4.5% y/y vs. 5.7% in September, while imports are expected flat y/y vs. 0.3% in September. CPI and PPI will be reported Wednesday. CPI is expected at 2.4% y/y vs. 2.8% in September, while PPI is expected at -1.6% y/y vs. 0.9% in September. The lack of price pressures should allow the PBOC to continue easing in the coming months. Over the weekend, senior National Health Commission official spoke about Covid Zero and said “Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct. The policies are also the most economical and effective.”

Thailand reports October CPI Monday. Headline is expected at 6.00% y/y vs. 6.41% in September, while core is expected at 3.20% y/y vs. 3.12% in September. If so, it would be the second straight deceleration from the 7.86% y/y peak in August but still well above the 1-3% target range. At the last policy meeting September 28, the Bank of Thailand hiked rates 25 bp to 1.0%, as expected. The vote was unanimous as the bank noted “The Thai economy will continue to recover but with increased inflation risks. The policy rate should be normalized in a gradual and measured manner to the level that is consistent with sustainable growth in the long term.” The bank forecasts 3.3% growth this year and 3.8% next year and sees 6.3% inflation this year and 2.6% next year. The inflation outlook seems too optimistic given the BOT’s rather gradual approach to tightening even as headline inflation rose 7.9% y/y in August. Next policy meeting is November 30 and another 25 bp hike is expected. The swaps market is pricing in 175 bp of tightening over the next 12 months that would see the policy rate rise to 2.75%.

Taiwan reports October CPI and trade data Tuesday. Exports are expected at -5.2% y/y vs. -5.3% in September, while imports are expected at -6.1% y/y vs. -2.4% in September. Export orders continue to weaken, suggesting little relief for shipments over the next six months. Elsewhere, headline CPI is expected at 2.70% y/y vs. 2.75% in September. If so, it would resume the decelerating trend from the 3.59% peak in June. While the central bank does not have an explicit inflation target, easing inflation should allow to maintain its modest pace of tightening for now. The swaps market is pricing in a peak policy rate near 2.0%.