Latam Weekly: Central Banks Parade

ECONOMIC OVERVIEW

• Between now and Friday, the Fed, ECB, BoE, BCB, Banxico, BCRP, SNB, Norges Bank, and PBoC will all meet and decide on policy, with recent inflation optimism prompting a sharp rally in global rates markets that has gone mostly unchallenged by officials—which partly fueled greater declines in yields.

• Among the key central banks announcing policy next week, only the BCB and BCRP are expected to move their benchmark rates, and it’s unlikely that they deviate from expected respective 50bps and 25bps cuts.

• As for Banxico, the doves in the board may firm up guidance for an earlier (February) rather than later (March) start to rate reductions. The Fed and ECB will be looking to push back against the quick increase in cuts pricing; the BoE may be more comfortable.

• Colombia retail sales and industrial production, Peru monthly GDP, the BCCh’s dual traders and economists surveys, and Brazilian CPI are the Latam data highlights. Chileans vote on the new Constitution text on the 17^th. Elsewhere, US CPI and retail sales, UK GDP, Chinese retail sales, industrial output, and investment, and global PMIs data await.

MARKET EVENTS & INDICATORS

• A comprehensive risk calendar with selected highlights for the period December 9–22 across the Pacific Alliance countries and Brazil.

ECONOMIC OVERVIEW: CENTRAL BANKS PARADE

Juan Manuel Herrera, Senior Economist/Strategist
Scotiabank GBM
+44.207.826.5654
juanmanuel.herrera@scotiabank.com

• Between now and Friday the Fed, ECB, BoE, BCB, Banxico, BCRP, SNB, Norges Bank, and PBoC will all meet and decide on policy, with recent inflation optimism prompting a sharp rally in global rates markets that has gone mostly unchallenged by officials—which partly fueled greater declines in yields.

• Among the key central banks announcing policy next week, only the BCB and BCRP are expected to move their benchmark rates, and it’s unlikely that they deviate from expected respective 50bps and 25bps cuts.

• As for Banxico, the doves in the board may firm up guidance for an earlier (February) rather than later (March) start to rate reductions. The Fed and ECB will be looking to push back against the quick increase in cuts pricing; the BoE may be more comfortable.

• Colombia retail sales and industrial production, Peru monthly GDP, the BCCh’s dual traders and economists surveys, and Brazilian CPI are the Latam data highlights. Chileans vote on the new Constitution text on the 17^th. Elsewhere, US CPI and retail sales, UK GDP, Chinese retail sales, industrial output, and investment, and global PMIs data await.

This week, the BoC’s and the RBA’s as-expected decisions with little surprises quietly kicked off the last round of central bank decisions of 2023. Between now and Friday the Fed, ECB, BoE, BCB, Banxico, BCRP, SNB, Norges Bank, and PBoC will all meet and decide on policy, after recent inflation optimism prompting a sharp rally in global rates markets that has gone mostly unchallenged by officials, which partly fueled greater declines in yields.

Among the key central banks announcing policy next week, only the BCB and BCRP are expected to move their benchmark rates, however. What’s more, there’s only some very slight uncertainty around the possible size of the BCRP’s cut (25 or 50bps) while the BCB is on a clearly laid-out 50bps schedule. November inflation data out on Tuesday and services volumes figures out on Wednesday ahead of the BCB’s decision are unlikely to materially change their guidance.

Throughout the week, we will preview the Latam central banks’ decisions in our Latam Daily reports. We see the BCB cutting the Selic rate 50bps to 11.75% (and another 50bps will very likely follow in February). November inflation data out on Tuesday and services volumes figures out on Wednesday ahead of the BCB’s decision are unlikely to materially change their guidance; October economic activity data closes out the week.

The BCRP looks on track to continuing its easing cycle at a 25bps pace—despite a solid November inflation miss (see here) and a weak economic performance. The day after the decision, we’ll get October GDP data that we expect will show a 0.4% y/y contraction in output due to weakness in manufacturing and construction industries against a boost from the second fishing season of the year (first one in May was cancelled); unemployment data are also out on Friday.

As for Banxico, the doves in the board may firm up guidance for an earlier (February) rather than later (March) start to rate cuts; at the margin, the deceleration in core inflation in November would support their view (see here). Mexican industrial production figures scheduled for a Tuesday release (markets closed for holidays) and Banxico’s economists survey on Friday should be an afterthought. We’re also watching what happens at Movimiento Ciudadano regarding who will represent them in next year’s presidential elections after Garcia dropped out to return to the Nuevo Leon governorship. On the topic of politics, Milei’s presidency in Argentina begins Sunday, the 10^th.

It will be BanRep’s and the BCCh’s turn the following week, on the 19^th, coming after an intriguing BoJ announcement in the early hours that same day. In the case of the BCCh, November’s CPI print massively beat expectations (see here), which has led the team to revise their expectation to a 50bps reduction versus a 75bps forecast before the data. It’s likely that other analysts feel the same way—and maybe also consider changes to their projections for the January 31^st decision—in the results to the BCCh’s economists and traders surveys out on Tuesday and Thursday, respectively. Recall that on the 17^th, Chileans will vote on whether to approve or reject the new Constitution text; before the polls blackout period, there was no statistical certainty about which option will be the most popular.

There’s still some uncertainty around whether BanRep will begin its cutting cycle in December, more so after inflation data surprised to the upside (see here), though for now we think they will, by 25bps (but it’s a close call). We get data for manufacturing/industrial production and retail sales, and the results of BanRep’s economists survey on Friday, followed by monthly economic activity on the 18^th, to help us narrow our view.

Of the remaining central banks meeting next week, some like the Fed and ECB could push back against what may be overextended cut bets in markets (~110–120bps and ~130–140bps by end-2024, respectively), while the BoE may be a bit more comfortable with market expectations (~80bps by end-2024) and not have to sound as hawkish (though it should consider itself lucky). Markets and economists are fairly confident the next SNB move will be a cut, in March, but are slightly prepared for a would-be surprise Norges Bank hike next week (Norwegian inflation out on Monday, too). The PBoC is not expected to shake things up on Friday. We also get a lot of data from outside Latam next week: US CPI on Tuesday; the BoJ’s Tankan survey, UK GDP, US PPI and IP on Wednesday; New Zealand Q3 GDP, Switzerland CPI, and US retail sales and import/export prices on Thursday; and a flood of global PMIs and Chinese retail sales, investment, and industrial production on Friday.