EM Preview for the Week Ahead

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Win Thin
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Over the weekend, China reported stronger than expected November PMI readings while Korea reported weaker than expected November trade data.  While the China data is welcome, we put more weight on Korea trade numbers, which typically serve as a good bellwether for the entire region.  Press reports suggest the Phase One trade deal has stalled due to Hong Kong legislation passed by the US Congress.  Until a deal is wrapped up, we remain cautious on EM. 

AMERICAS

Chile reports October GDP proxy Monday, which is expected to contract -0.5% y/y vs. +3.0% in September.  Retail sales will be reported Tuesday, which are expected to contract -4.4% y/y vs. -0.9% in September.  The central bank meets Wednesday and is expected to cut rates 25 bp to 1.5%.  However, the weak peso complicates matters and we see scope for steady rates.  November CPI and trade will be reported Friday.  Inflation is expected at 2.7% y/y vs. 2.5% in October, which would keep it in the bottom half of the 2-4% target range.  It’s still early on but the central bank’s intervention plan to sell up to $10 bln of reserves and $10 bln of FX swaps didn’t give much bang for the buck.

Brazil reports November trade data Monday.  Q3 GDP will be reported Tuesday, with growth expected to remain steady at 1.0% y/y.  October IP will be reported Wednesday and is expected to rise 1.5% y/y vs. 1.1% in September.  November IPCA inflation will be reported Friday and is expected to rise 3.23% y/y vs. 2.54% in October.  If so, it would be the highest since August but still in the bottom half of the 2.75-5.75% target range.  Next COPOM meeting is December 11 and a 50 bp cut to 4.5% is expected.

Colombia reports November CPI Thursday and is expected to rise 3.91% y/y vs. 3.86% in October.  If so, inflation would move closer to the top of the 2-4% target range.  Next policy meeting is December 20 and no change is expected then.  Protest are ongoing and USD/COP traded at an all-time high of 3547 Friday.  As long as the peso remains vulnerable, rates are likely to be kept steady.  Central bank Governor Echavarria said it is “very carefully” monitoring the peso and we would not rule out FX intervention if weakness picks up.

EUROPE/MIDDLE EAST/AFRICA

Turkey reports Q3 GDP Monday, which is expected to grow 1.0% y/y vs. -1.5% in Q2.  If so, it would be the first positive reading since Q3 2018.  November CPI will be reported Tuesday, which is expected to rise 11.0% y/y vs. 8.55% y/y in October.  If so, inflation would be the highest since August and further above the 3-7% target range.  Next policy meeting is December 12.  While Erdogan would love to see another large cut then, the inflation data will likely prevent this.

South Africa reports Q3 GDP Tuesday, with growth expected at 0.4% y/y vs. 0.9% in Q2.  If so, this would reverse the modest pickup seen in Q2.  The economy remains sluggish while inflation remains low.  Next policy meeting is January 16.  The SARB missed a golden opportunity to cut rates in November.  Q3 current account data will be reported Thursday, with the deficit expected at -3.0% of GDP vs. -4.0% in Q2.

National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%.  CPI rose 2.6% y/y in November, near the center of the 1.5-3.5% target range.  The economy is slowing, which will likely underscore the bank’s intent to keep rates steady into 2021.

Russia reports November CPI Friday, which is expected to rise 3.6% y/y vs. 3.8% in October.  If so, inflation would be the lowest since October 2018 and further below the 4% target.  Next policy meeting is December 13 and a 25 bp cut to 6.25% is expected.  Low oil and natural gas prices are weighing on the economy and so further stimulus is likely next year as well.

ASIA

Thailand reports November CPI Monday, which is expected to rise 0.30% y/y vs. 0.11% y/y in October.  If so, inflation would remain well below the 1-4% target range.  Next policy meeting is December 18 and no change is expected then.   However, we see risks of a dovish surprise and/or more measures to prevent excessive bath strength.

Indonesia reports November CPI Monday, which is expected to rise 3.06% y/y vs. 3.13% y/y in October.  If so, inflation would be the lowest since April and right at the bottom of the 3-5% target range.  Next policy meeting is December 19 and no change is expected then.  However, we see risks of a dovish surprise.  At the last meeting, the bank cut reserve requirements whilst keeping the policy rate steady at 5.0%.

Philippines reports November CPI Thursday, which is expected to rise 1.2% y/y vs. 0.8% in October. If so, inflation would remain well below the 2-4% target range.  After first saying that any further easing this year was unlikely, Governor Diokno last week admitted that a rate cut this month was possible.  Next policy meeting is December 12.  If November inflation remains low, then we look for another 25 bp cut to 3.75%.

Reserve Bank of India meets Thursday and is expected to cut the repo rate 25 bp to 4.90%.  Inflation was 4.6% y/y in October, the highest since June 2018 but within the 2-6% target range.  However, GDP growth slowed to 4.5% y/y in Q3, the slowest since Q1 2013.  Prime Minister Modi is totally focused on boosting growth and so fiscal stimulus is also under way, though the scope is somewhat limited by India’s structural budget gaps.