by Risk assets such as EM got a big boost last week, as tail risks from a hard Brexit and the US-China trade war have clearly ebbed. Still, the initial lack of details on the Phase One deal as well as uncertainty regarding the next phases have left the markets a bit jittery and nervous. Hopefully, this week may bring some further clarity and the good news is that the December 15 tariffs have been canceled. AMERICAS Brazil COPOM minutes will be released Tuesday. It cut rates 50 bp and left the door open to further easing, so the minutes will be of interest to the markets. The central bank then releases its quarterly inflation report Thursday. Mid-December IPCA inflation will be reported Friday, which is expected to rise 3.71% y/y vs. 2.67% in mid-November. If so, it
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Risk assets such as EM got a big boost last week, as tail risks from a hard Brexit and the US-China trade war have clearly ebbed. Still, the initial lack of details on the Phase One deal as well as uncertainty regarding the next phases have left the markets a bit jittery and nervous. Hopefully, this week may bring some further clarity and the good news is that the December 15 tariffs have been canceled.
AMERICAS
Brazil COPOM minutes will be released Tuesday. It cut rates 50 bp and left the door open to further easing, so the minutes will be of interest to the markets. The central bank then releases its quarterly inflation report Thursday. Mid-December IPCA inflation will be reported Friday, which is expected to rise 3.71% y/y vs. 2.67% in mid-November. If so, it would be the highest since mid-June but still in the bottom half of the 2.75-5.75% target range. Next COPOM meeting is February 5 and much will depend on external conditions and the exchange rate. November current account and FDI data will also be reported Friday.
Banco de Mexico meets Thursday and is expected to cut rates 25 bp to 7.25%. CPI rose 3% y/y in November, right at the bank’s target. With growth still sluggish, we think easing will continue in 2020. Market is pricing in a policy rate of 6.25% by Q1 2021, which we think understates the case for rate cuts. Still, much will depend on external conditions and the peso.
Colombia reports October IP Tuesday. October trade will be reported Wednesday. The central bank meets Friday and is expected to keep rates steady at 4.25%. CPI rose 3.8% y/y in November, near the top of the 2-4% target range. With growth still sluggish, we think rates will be kept steady in 2020.
EUROPE/MIDDLE EAST/AFRICA
Poland reports October trade and current account data Monday. Industrial output and PPI will be reported Thursday, along with central bank minutes. Real retail sales will be reported Friday and are expected to rise 3.8% y/y vs. 4.6% in October. Like the rest of the region, the economy is slowing and so the central bank is likely to make good on its pledge to keep rates at 1.5% through 2021.
National Bank of Hungary meets Tuesday and is expected to keep rates steady at 0.90%. However, it is likely to add back some liquidity for Q1 that it removed earlier this year. There is currently HUF300-500 bln of excess liquidity in Q4 and that is likely to be boosted to HUF400-600 bln. CPI rose 3.4% y/y in November, well within the 2-4 target range. However, with the economy slowing, we see steady rates in 2020 with potential for further excess liquidity conditions.
Czech National Bank meets Wednesday and is expected to keep rates steady at 2.0%. CPI rose 3.1% y/y in November, above the 1-3% target range for the first time since October 2012. With the economy slowing, we see steady rates in 2020 coupled with some risk of rate cuts if the slowdown gathers force.
ASIA
China reports November IP and retail sales Monday. The former is expected to rise 5.0% y/y and the latter by 7.6% y/y, both picking up a bit from October. Overall, the economy remains at risk but the outlook has improved marginally now that the December 15 tariffs have been avoided. We see further targeted easing measures in 2020.
India reports November WPI Monday, which is expected to rose 0.84% y/y vs. 0.16% in October. Despite low WPI inflation, CPI inflation has been rising to a cycle high 5.54% y/y in November. This is the highest since July 2016 and nearing the top of the 2-6% target range. The RBI unexpectedly kept rates steady at its last meeting and is likely to do so again at the next meeting February 6.
Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.25%. CPI rose 0.2% y/y in November, well below the bottom of the 1-4% target range. The economy is slowing under the weight of the US-China trade war and the strong baht. Political risk is rising after weekend protests called by main opposition party Future Forward after the election commission called for its dissolution.
Bank Indonesia meets Thursday and is expected to keep rates steady at 5.0%. A small handful of analysts see a 25 bp cut. CPI rose 3.0% y/y in November, in the bottom half of the 2.5-3.5% target range. We do not think the easing cycle is over and look for more cuts in 2020. Due to sluggish growth, the cabinet is discussing possible relaxation of the fiscal cap currently at -3% of GDP. Fitch opined that relaxing this rule wouldn’t necessarily harm Indonesia’s credit rating.
Taiwan central bank meets Thursday and is expected to keep rates steady at 1.375%. CPI rose 0.6% y/y in November. While the bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady through 2020. Taiwan then reports November export orders Friday, which are expected to contract -0.9% y/y vs. -3.5% in October.
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