EM FX was largely softer last week as the broad-based dollar rally continued. CLP, TWD, and INR outperformed while THB, HUF, and PLN underperformed. Data this week are expected to show continued strength in the U.S. economy, although some labor market readings will be distorted by the hurricanes and strikes. If so, the dollar should continue to climb, keeping EM FX under pressure.
AMERICAS
Brazil reports September current account and FDI data Tuesday. Central government budget data for September will be reported sometime this week. Consolidated budget data will be reported Thursday and a -BRL8.5 bln primary deficit is expected vs. -BRL21.4 bln in August. The twin deficits are likely to continue weighing on Brazil’s outlook, as Lula has shown little effort at fiscal consolidation. No wonder the central bank is tightening. September IP will be reported Friday and is expected at 3.3% y/y vs. 2.2% in August.
Mexico reports Q3 GDP data Wednesday. Growth is expected at 0.8% q/q vs. 0.2% in Q2, while the y/y rate is expected at 1.3% vs. 2.1% in Q2. If so, it would be the slowest y/y rate since Q1 2021. No wonder Banco de Mexico is cutting rates. Next meeting is November 14 and another 24 bp cut to 10.25% seems likely. The swaps market is pricing in 125 bp of total easing over the next 12 months.
Colombia central bank meets Thursday and is expected to cut rates 50 bp to 9.75%. However, 4 of the 19 analysts polled by Bloomberg look for a larger 75 bp cut. With the peso under pressure, we think a jumbo cut would be too risky. At the last meeting September 30, the central bank cut rates 50 bp to 10.25% and noted that “Today’s decision will continue to support the recovery of economic growth and maintains the necessary prudence given the risks that remain over the behavior of inflation.” The vote was 4-3, with the three dissents in favor of a larger 75 bp cut. This was more dovish than the 5-2 vote to cut 50 bp July 31. The market is pricing in 225 bp of total easing over the next 12 months that would see the policy rate bottom near 8.0%.
Peru reports October CPI data Friday. Headline is expected at 2.10% y/y vs. 1.78% in September. If so, it would be the first acceleration since June but would remain near the center of the 1-3% target range. At the last meeting October 10, the central bank delivered a hawkish surprise and kept rates steady at 5.0% vs. an expected 25 bp cut to 5.0%. It warned that inflation would rise in Q4 due to base effects but would remain in the target range. Recently, the bank’s chief economist Armas said the bank will continue cutting rates gradually and that decisions would be based on core inflation, inflation expectations, and economic growth. Next meeting is November 7 and the decision will depend on how core inflation behaves in October.
EUROPE/MIDDLE EAST/AFRICA
CEE GDP data will be reported Wednesday. Hungary is expected to grow 0.1% q/q vs. -0.2% in Q2, while the y/y rate is expected at 0.7% vs. 1.5% in Q2. Elsewhere, Czech Republic is expected to grow 0.5% q/q vs. 0.4% in Q2, while the y/y rate is expected at 1.5% vs. 0.6% in Q2. Poland and Slovakia will both report GDP November 14. Overall, the weak growth outlook for this region should keep the central banks in easing mode.
Poland reports October CPI Thursday. Headline is expected to pick up a tick to 5.0% y/y. If so, it would be the highest since December and further above the 1.5-3.5% target range. At the last meeting October 2, the central bank kept rates steady at 5.75% but Governor Glapinski continued to tilt more dovish and said a cut could come in March, April, or even earlier. He added that under the optimistic scenario, the bank’s March forecasts will show inflation has stabilized and may fall back to the 2.5% target. Next meeting is November 6 and another hold is expected. However, the market is pricing in 25 bp of easing over the next three months.
ASIA
China reports official October PMIs Thursday. Manufacturing is expected to rise a tick to 49.9 while non-manufacturing is expected to rise half a point to 50.5. Caixin reports its manufacturing PMI Friday and is expected to rise four ticks to 49.7. Markets are still awaiting further details of China’s stimulus measures. Vice Finance Minister Liao said over the weekend that any details of China’s fiscal policy would only come after the conclusion of the National People’s Congress Standing Committee meeting scheduled for November 4-8.
Korea reports September IP Thursday. IP is expected at -0.3% y/y vs. 3.8% in August. If so, it would be the weakness reading since July 2023. October trade data will be reported Friday. Exports are expected at 6.7% y/y vs. 7.5% in September, while imports are expected at 0.7% y/y vs. 2.2% in September. Regional growth and activity may see some modest improvement in Q4 from China stimulus, but Bank of Korea is likely to remain in easing mode to help boost domestic activity. The market is pricing in 50 bp of total easing over the next 12 months.
Indonesia reports October CPI data Friday. Headline is expected at 1.66% y/y vs. 1.84% in September, while core is expected at 2.08% y/y vs. 2.09% in September. If so, headline would be the lowest since October 2021 and further below the 2-4% target range. At the last meeting October 16, Bank Indonesia kept rates steady at 6.0% after starting the easing cycle September 18 with a 25 bp cut. It noted that noted that "The focus of short-term monetary policy is on rupiah exchange rate stability, due to increasing global financial market uncertainty." Governor Warjiyo said “BI continues to keep an eye on the room for policy rate cuts while keeping in mind the outlook for CPI, IDR, and economic growth.” Next meeting is November 20 and if the rupiah has recovered, the bank is likely to resume cutting rates cautiously.
