(Ffrom my colleague Dr. Win Thin)
EM FX ended the holiday-shortened week on a soft note. While most were up on the entire week, notable laggards were TRY, CLP, and ZAR. All three currencies underperformed due to rising political risks, and we suspect that will continue. We believe MXN and BRL are likely to rejoin the laggards in the coming days.
Bank of Israel meets Monday and is expected to keep rates steady at 0.10%. Inflation was 0.2% y/y in October, well below the 1-3% target range. However, the bar to further stimulus is very high. Instead, the central bank will likely continue trying to weaken the shekel.
Mexico reports October trade Monday. A deficit of -$912 mln is expected. Export growth slowed to 3.4% y/y in September, the slowest since October 2016. With NAFTA talks ongoing, we think markets may become particularly sensitive to Mexico’s trade performance.
Brazil reports October central government budget data Tuesday. A primary surplus of BRL3 bln is expected. Consolidated government budget data will be reported Wednesday, where a primary surplus of BRL3.5 bln is expected. Tax revenues were strong in October, suggesting some upside risks to the budget data. November trade and Q3 GDP will be reported Friday.
South Africa reports October money and loan growth Tuesday. It then reports October trade and budget data Thursday. S&P downgraded South Africa Friday as we expected, whilst Moody’s put it on review for possible downgrade. The S&P downgrade will lead to ejection from Barclays Global Aggregate index, but a Moody’s downgrade will lead to ejection from Citi’s WGBI.
Chile reports October IP Wednesday, which is expected to rise 5.6% y/y vs. 1.0% in September. It then reports October retail sales Friday. The economy is finally picking up, which supports the central bank’s desire to end the easing cycle. However, low inflation should allow for steady policy until well into next year.
