EM Preview for the Week Ahead

EM came under pressure last week as doubts rose whether the Phase One deal can be completed.  Also, the dollar was able to get some traction against the majors as the eurozone, UK, and Japan all reported weaker than expected November PMI readings.  Divergences in the growth outlook and interest rate differentials should remain in the dollar’s favor.  Furthermore, the weaker global growth outlook won’t be good for EM.


Mexico reports final Q3 GDP and current account data Monday.  October trade will be reported Wednesday.  Banco de Mexico also releases its quarterly inflation report Wednesday, followed by its minutes Thursday.  Inflation remains near the 3% target while economic growth remains disappointing, and so we see rate cuts continuing well into 2020.  Next policy meeting is December 19 and another 25 bp cut to 7.25% is expected.  The government is reportedly pressuring Pemex to reduce spending through year-end in order to

Brazil reports October current account and FDI data Monday.  Central government budget data for October will be reported Thursday, followed by consolidated budget data Friday.  The budget numbers have stabilized and should improve as economic growth picks up.  However, growth has been disappointing and this is likely to lead to another rate cut.  Next COPOM meeting is December 11 and another 50 bp cut to 4.5% is expected.

Chile reports October IP Friday, which is expected to contract -5.7% y/y vs. -0.2% in September.  The negative impact of the protests will become more pronounced in the weeks ahead. Indeed, Finance Minister Briones warned of a “significant” economic slump in October and November.  Protests continued over the weekend despite the fact that the government has made numerous concessions to protestor demands.



Bank of Israel meets Monday and is expected to cut rates 15 bp to 0.10%.  However, the market is split.  Of the 19 analysts polled by Bloomberg, 11 see a cut and 8 see steady rates.  Political uncertainty has risen after the major parties were unable to form a working coalition, later compounded by Netanyahu’s indictment on charges of bribery and fraud.  Gideon Saar of Likud submitted a request to the party calling for a leadership vote in the next three weeks, the first serious challenge to Netanyahu ever.

South Africa reports October money and private sector credit, budget, and trade data Friday.  SARB missed a golden opportunity to cut rates last week and will likely regret its decision in the coming weeks as the economy struggles to grow.  S&P just cut the outlook on its BB rating from stable to negative, citing slow growth and the rising debt and deficit outlook.  Our own sovereign ratings model shows South Africa’s implied rating at BB-/Ba3/BB-.  Moody’s and Fitch’s ratings of Baa3 and BB+, respectively, continue to see heightened downgrade risk. Loss of investment grade from Moody’s would lead to ejection from WGBI. Even S&P’s BB rating appears too high now.

Poland reports October real retail sales Monday, which are expected to remain steady at 4.3% y/y.  November CPI will be reported Friday, with inflation expected to remain steady at 2.5% y/y.  If so, it would remain right at the central bank’s target.  The bank has promised steady rates into 2021 and we see no reason to change this outlook.  Next policy meeting is December 4 and no change is expected then.



Singapore reports October CPI Monday, with inflation expected to remain steady at 0.5% y/y.  While the MAS does not have an explicit inflation target, low price pressures will allow it to ease policy again at its April policy meeting if the economic outlook hasn’t improved.  October IP will be reported Tuesday, which is expected to contract -1.2% y/y vs. +0.1% September.  The entire region is feeling the impact of the US-China trade war.

Bank of Korea meets Friday and is expected to keep rates steady at 1.25%.  Before the decision, Korea reports October IP and it is expected to contract -3.1% y/y vs. +0.1% in September.  On Sunday local time, Korea reports November trade data.  Exports continue to contract due to the regional impact of the US-China trade war.  Thankfully, Japan-Korea relations may be thawing as the two voted to renew the expiring intelligence-sharing pact.  Tensions have been inflamed due to long-standing issues of colonial-era reparations.  The two are working towards a summit in China next month.

India reports Q3 GDP Friday, with growth expected to slow to 4.6% y/y from 5.0% in Q2.  If so, this would be the slowest rate since Q1 2013.  No wonder policymakers are adding stimulus whenever possible.  The RBI has cut rates several times already and more will come.  Next policy meeting is December 5 and another 25 bp cut to 4.90% is expected.

China reports official November PMI readings Saturday local time.  Manufacturing is expected to improve to 49.5 from 49.3 in October, while non-manufacturing is expected to improve to 53.1 from 52.8 in October.  This will be the first snapshot of the mainland economy in November and weakness is expected to persist until trade tensions have been addressed.  Until then, expect further injections of targeted stimulus from time to time.