EM has had a good month so far as market optimism on a Phase One trade deal remains high.Yet November trade data due out this week should show that until that deal is finalized, the outlook for EM remains weak. Deadline for the next round of US tariffs is December 15 and so talks this week are crucial. Lastly, three major EM central banks are expected to cut rates this week, underscoring the downside risks to growth.
AMERICAS
Mexico reports November CPI Monday, which is expected to rise 3.0% y/y vs. 3.02% in October. If so, inflation would be right at the target. Next policy meeting is December 19 and another 25 bp cut to 7.25% is expected. October IP will be reported Thursday, which is expected to contract -1.8% y/y, same as September.
Chile reports November trade Monday. The economy collapsed in October and this will be the first real sector reading for November. We expect the economy to contract in Q4 but inflation is likely to remain elevated. November CPI picked up to 2.7% y/y in November and further gains seem likely. No wonder the central bank decided to stand pat last week rather than cut rates 25 bp as markets expected.
Brazil COPOM meets Wednesday and is expected to cut rates 50 bp to 4.5%. IPCA inflation picked up to 3.27% y/y in November, the highest since August but still in the bottom half of the 2.75-5.75% target range. Earlier that day, Brazil reports October retail sales and are expected to pick to 3.6% y/y.
Peru central bank meets Thursday and is expected to keep rates steady at 2.25%. The bank unexpectedly cut rates last month and so it seems too soon for another cut. CPI rose 1.87% y/y in November, below the 2% target for the third straight month. If the economy remains sluggish, we cannot rule out further easing in 2020.
Colombia reports October manufacturing production and retail sales Friday. The former is expected to rise 1.5% y/y and the latter by 6.8% y/y. The economy is at risk but inflation remain high. CPI rose 3.84% y/y in November, down a couple ticks from October but still near the top of the 2-4% target range. Next policy meeting is December 20 and steady rates are likely then.
EUROPE/MIDDLE EAST/AFRICA
Czech Republic reports October trade, industrial and construction output Monday. Data suggest the economy is slowing. November CPI will be reported Tuesday, which is expected to rise 2.9% y/y vs. 2.7% in October. If so, inflation would be the highest since August and back near the top of the 1-3% target range. Next policy meeting is December 18 and no change is expected then.
Hungary reports October trade Monday. November CPI will be reported Tuesday, which is expected to rise 3.4% y/y vs. 2.9% in October. If so, inflation would be the highest since June and back in the upper half of the 2-4% target range. Next policy meeting is December 17 and no change in rates is expected then. However, the bank is likely to add back liquidity for Q1 that it withdrew earlier this year.
South Africa reports October manufacturing production Tuesday, which is expected to contract -2.6% y/y vs. -2.4% in September. November CPI and October retail sales Wednesday. Inflation is expected to tick down to 3.6% y/y, while sales are expected to pick up slightly to 0.8% y/y. November PPI will be reported Thursday. Next policy meeting is January 16. If the data continue to come in weak, we think a rate cut then becomes more likely.
Central Bank of the Republic of Turkey meets Thursday and is expected to cut rates 150 bp to 12.50%. As usual, the market is all over the place with analysts looking for cuts of 100, 125, 150, and 200 bp. CPI inflation picked up to 10.6% y/y in November, thereby limiting the bank’s leeway to cut rates more aggressively this week. October IP will be reported Friday, which is expected to rise 6.0% y/y vs. 3.4% in September.
Russia reports Q3 GDP and October trade Thursday. Growth is expected to remain steady at 1.7% y/y. The central bank then meets Friday and is expected to cut rates 25 bp to 6.25%. A few analysts see no cut and two see a 50 bp cut. CPI rose 3.5% y/y in November, lower than expected and the lowest since October 2018. If inflation keeps falling below the 4% target, further easing is likely.
ASIA
China data deluge begins this week. November trade was reported over the weekend, with exports falling -1.1% y/y vs. an expected 0.8% y/y rise and imports rising 0.3% y/y vs. an expected -1.4% y/y contraction. New loan and money data will be reported sometime this week, with both expected to rebound from a weak October. CPI and PPI will be reported Tuesday, with the former expected to rise 4.4% y/y and the latter expected to fall -1.5% y/y.
Taiwan reports November trade data Monday. Exports are expected to rise 1.1% y/y and imports by 3.2% y/y. However, given poor Korea trade data already reported for the month, we see downside risks for the entire region. CPI rose only 0.59% y/y in November. While the central bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady through much of 2020. Next policy meeting is December 19 and no change is expected then.
Philippines reports October trade data Monday. Exports are expected to contract -2.7% y/y and imports by -7.4% y/y. The central bank meets Thursday and is expected to keep rates steady at 4.0%. CPI rose 1.3% y/y, a tick higher than expected but still well below the 2-4% target range. As such, we see risks of a dovish surprise this week.
India reports November CPI and October IP Thursday. Inflation is expected to accelerate to 5.26% y/y from 4.62% in October, while IP is expected to contract -4.5% y/y vs. -4.3% in September. RBI surprised markets with a hold last week. Next policy meeting is February 6. If the real sector data continue to come in weak, we think a rate cut then becomes more likely.
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