EM Preview for the Week of November 7, 2021

November 07, 2021

EM FX was mixed last week despite the fact that yen and Swiss franc were the best performing majors, which would suggest some risk off impulses. Yet CZK, BRL,ZAR, and MXN were able to post solid gains last week even as COP, KRW, IDR, and TRY posted sizeable losses. Global rates fell last week after the BOE’s dovish surprise, which is helpful for EM. However, we think that U.S. rates are likely to head higher once the dust settles. Along with the strong dollar, the drivers ahead for EM look negative.


Chile reports October CPI and trade data Monday. Headline inflation is expected at 5.6% y/y vs. 5.3% in September. If so, it would be the highest since October 2014 and further above the 2-4% target range. The central bank started the tightening cycle with a 25 bp hike to 0.75% in July, then followed up with a 75 bp hike in August and a 125 bp hike in October to bring the policy rate up to 2.75%. The last two were both hawkish surprises. Next policy meeting is December 14 and another big hike is expected then. Of note, swaps market is pricing in 275-300 bp of tightening over the next twelve months.

Mexico reports October CPI Tuesday. Headline inflation is expected at 6.19% y/y vs. 6.0% in September. If so, it would be the highest since December 2017 and further above the 2-4% target range. Banco de Mexico meets Thursday and is expected to hike rates 25 bp to 5.0%. A small handful of analysts look for a 50 bp hike to 5.25%. Of note, swaps market is pricing in 250 bp of tightening over the next twelve months. September IP will also be reported Thursday and is expected at -0.2% m/m vs. a 0.4% gain in August.

Brazil reports October IPCA inflation Wednesday. Headline inflation is expected at 10.48% y/y vs. 10.25% in September. If so, it would be the highest since January 2016 and further above the 2.25-5.25% target range. Of note, the target range falls to 2-5% in 2022. Next COPOM meeting is December 8 and the bank hinted at another 150 bp hike then that would take the policy rate up to 9.25%. However, market were disappointed with the last 15p bp hike and is looking for something bigger, with the CDI market pricing in a 200 bp hike to 9.75%. September retail sales will be reported Thursday and are expected at -0.4% m/m vs. -3.1% in August.

Peru central bank meets Thursday and is expected to hike rates 50 bp to 2.0%. Last week, headline inflation came in at 5.83% y/y vs. 5.30% expected and 5.23% in September. This was the highest since January 2009 and further above the 1-3% target range. As such, we see some risks of a hawkish surprise this week. The bank started the tightening cycle with a 25 bp hike to 0.5% in August and then followed up with 50 bp hikes in September and October.


Czech Republic reports September industrial and construction output and trade data Monday. October CPI will be reported Wednesday, with headline inflation expected at 5.5% y/y vs. 4.9% in September. If so, it would be the highest since October 2008 and further above the 1-3% target range. No wonder the central bank delivered a hawkish surprise last week, hiking rates 125 bp to 2.75% vs. 75 bp expected and accelerating from the 75 bp hike in September. Governor Rusnok said tis hike delivered a “large” part of the tightening projected in the bank’s updated outlook, adding “I can imagine the coming rate increases will certainly be smaller.” Swaps market sees a little more than 50 bp of tightening over the next twelve months.

Hungary reports September trade data Monday. October CPI will be reported Tuesday, with headline inflation expected at 6.2% y/y vs. 5.5% in September. If so, it would be the highest since September 2012 and further above the 2-4% target range. And yet the central bank so far is sticking with its slow 15 bp per meeting pace of tightening. Next policy meeting is November 16 and another 15 bp hike to 1.95% is expected. If inflation pressures do not ease soon, the bank may be forced to pick up the pace of tightening back to 30 bp per meeting.

National Bank of Poland publishes its quarterly inflation report Monday. The bank just delivered a hawkish surprise last week with a 75 bp hike to 1.25% vs. 25 bp expected. However, there is still much work to be done with inflation at 6.8% y/y in October, well above the 1.5-3.5% target range. While the bank would not give any further forward guidance, more tightening is clearly on the way and so this week’s inflation report may hold some clues. Next policy meeting is December 8 and we look for another large hike then. Swaps market sees 150 bp of tightening over the next twelve months.

Israel reports October trade Thursday. Last week, Bank of Israel said its FX interventions aren’t limited to the planned $30 bln this year, which is pretty much saying it will continue intervening. At that time, ILS had traded at the strongest level since March 1996 near 3.10. The shekel has been on a tear since October 7, when the central bank delivered a hawkish hold by announcing an end to QE and saying that its sees the policy rate between 0.10-0.25% in a year vs. 0.10% currently. Next policy meeting November 22 will be very important. Of note, the October decision was 5-1, with the dissent in favor of a 15 bp hike to 0.25%.


China reports October money and loan data will be reported sometime this week. New loans are expected at CNY800 bln vs. CNY1.66 trln in September, while aggregate financing is expected at CNY1.6 trln vs. CNY2.9 trln in September. October CPI and PPI will be reported Wednesday. CPI is expected to rise 1.4% y/y vs. 0.7% in September, while PPI is expected to rise 12.5% y/y vs. 10.7% in September. For now, the focus is on promoting growth and so the inflation data will have little impact. Over the weekend, October trade data was reported. Exports rose 27.1% y/y vs. 22.8% expected and 28.1% in September, while imports rose 20.6% y/y vs. 26.2% expected and 17.6% in September.

Malaysia reports September IP and manufacturing sales Tuesday. Q4 current account and GDP data will be reported Friday. GDP is expected to contract -2.1% y/y vs. 16.1% growth in Q2. Bank Negara just kept rates steady last week at 1.75%, as expected. The bank noted that headline inflation will average 2-3% this year and will remain “moderate” next year, while core inflation will average less than 1% this year vs. 0.5-1.5% previously forecast and will edge higher next year but “remain benign.” Bloomberg consensus sees steady rates to mid-2022, with the first hike seen by end-2022.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 0.5%. CPI rose 2.38% y/y in October, the highest since May but still well within the 1-3% target range. However, core inflation was only 0.21% y/y. All signs point to steady policy for now. At the last meeting September 29, the decision to hold was unanimous and compares to the previous meeting August 4, when it was a 4-2 vote with the two dissents in favor of a 25 bp cut. We expect rates are likely to remain on hold through 2022, with risks of further backdoor easing via macroprudential measures. After the reversal of the August dissents, it seems that the bar to an outright rate cut remains high.

India reports October CPI and September IP Friday. Inflation is expected at 4.33% y/y vs. 4.35% in September, while IP is expected at 4.6% y/y vs. 11.9% in August. If so, inflation would decelerate for the fifth straight month to the lowest since April. However, it would remain in the upper half of the 2-6% target range. At the last policy meeting October 8, the Reserve Bank of India kept rates on hold but announced an abrupt end to the its bond purchase program as well as the announcement of long-term reverse repo auctions to drain liquidity. As such, the bar to further easing seems very high. Next meeting is December 7 and rates are expected to remain steady at 4.0%.

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