EM FX was broadly firmer last week, taking advantage of the dollar’s soft tone as well as another wave of risk-on sentiment. Bullishness on the global economy is quite strong, whilst we are perhaps a bit more skeptical given ongoing weakness in the UK, Japan, and the eurozone. Dollar bearishness may also be overdone given our more constructive outlook on the US economy, but technical damage has been done that must now be repaired.
AMERICAS
Brazil reports November central and consolidated budget data Monday. Revenue collection has slowed in recent months, even as interest costs have risen. As a result, the nominal deficit has risen two straight months to stand at -6.35% of GDP in October. November trade will be reported Thursday. Next COPOM meeting is February 5. If inflation continues to creep higher, then the easing cycle has likely ended with rates at the current 4.5%.
Chile reports November IP Tuesday, which is expected to contract -4.1% y/y vs. -3.4% in October. It then reports November GDP proxy, which is expected to contract -3.6% y/y vs. -3.4% in October. The economy continues to struggle from the protest movement while inflation remains under control. December CPI will be reported Thursday and is expected to rise 3.1% y/y vs. 2.7% in November. If so, inflation would be the highest since September 2018 and back in the top half of the 2.4% target range. Next central bank meeting is January 16 and steady rates are expected.
Colombia reports December CPI Saturday, which is expected to rise 3.79% y/y vs. 3.84% in November. If so, inflation would remain near the top of the 2-4% target range. Next central bank meeting is January 29 and steady rates are likely then.
EUROPE/MIDDLE EAST/AFRICA
South Africa reports November money and private sector credit data Tuesday. Both are expected to pick up slightly but the overall economy remains weak. Inflation has eased to 3.6% y/y in November, the lowest since February 2011 and near the bottom of the 3-6% target range. Next central bank meeting is January 16. If disinflation continues, then a 25 bp cut to 6.25% is likely then.
Turkey reports November trade data Tuesday, where a -$2.1 bln deficit is expected. If so, the 12-month total would rise for the fourth straight month to -$29.4 bln. This would be the biggest total since May, as exports stagnate and import demand picks up. Yet the current account remains in surplus. December CPI will be reported Thursday and is expected to rise 11.46% y/y vs. 10.56% in November. If so, inflation would be the highest since August and further above the 3-7% target range. Next central bank meeting is January 16 and steady rates are likely then.
Russia reports December CPI Wednesday, which is expected to rise 3.1% y/y vs. 3.5% in November. If so, inflation would be the lowest since August 2018 and further below the 4% target. Next central bank meeting is February 7. If disinflation continues, then another 25 bp cut to 6.0% is likely then.
ASIA
Korea reports November IP Monday, which is expected to contract -0.4% y/y vs. -2.5% in October. It then reports December CPI Tuesday, which is expected to rise 0.6% y/y vs. 0.2% in November. December trade will be reported Wednesday, with exports expected to contract -8.6% y/y and imports by -6.9% y/y. Next central bank meeting is January 17. If disinflation continues, then another 25 bp cut to 6.0% is likely then.
Hong Kong reports November trade data Monday. Exports are expected to contract -6.2% y/y and imports by -8.8% y/y. The economy continues to suffer from the US-China trade war as well as the local protests. The external headwinds should ease a bit in the coming months, but the protests look set to continue well into the new year.
China reports official December PMI readings Tuesday. Manufacturing PMI is expected to fall a tick to 50.1, while non-manufacturing PMI is expected to fall a couple ticks to 54.2. Caixin reports its December manufacturing PMI Thursday, which is expected to fall a couple ticks to 51.6. Over the weekend, policymakers ordered lenders to stop using the old benchmark lending rates starting in January and to instead use the Loan Prime Rate (LPR). This should lower borrowing costs going forward.
Singapore reports advance Q4 GDP Thursday. Growth is expected to pick up to 1.0% y/y from 0.5% in Q3. If so, growth would be the strongest since Q1 and this would be the second straight quarter of acceleration. However, monthly data reported so far have been very weak and so we see downside risks to the forecast. If the economy remains sluggish and price pressures remain low, we expect the MAS to loosen policy at its semiannual policy meeting in April.
Thailand reports December CPI Thursday, which is expected to rise 0.7% y/y vs. 0.2% in November. If so, inflation would remain below the 1-4% target range. Next central bank meeting is February 5. If inflation remains low, another 25 bp cut to 1.0% is likely then.
Philippines reports December CPI Thursday, which is expected to rise 2.0% y/y vs. 1.3% in November. If so, inflation would be at the bottom of the 2-4% target range. Next central bank meeting is February 6. If inflation remains low, another 25 bp cut to 3.75% is likely then.
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