Search Results: 657
Pantheon Macroeconomics aims to be the premier provider of unbiased, independent macroeconomic intelligence to financial market professionals around the world.
Sorry, but our website is best viewed on a device with a screen width greater than 320px. You can contact us at: firstname.lastname@example.org.
657 matches for " latam":
The US employment data last week reduced further the likelihood of a June Fed rate increase. In turn, this changes the likely timing of the normalization process in some LatAm economies. Our Chief Economist, Ian Shepherdson, expects the Fed to start its normalization process in July or September; the strength of the employment data will prevent any postponement beyond the third quarter.
The downturn in LatAm is finally bottoming out, but the economy of the region as a whole will not return to positive year-over-year economic growth until next year. The domestic side of the region's economy is improving, at the margin, thanks mainly to the improving inflation picture, and relatively healthy labor markets.
The Fed rate hike on Wednesday is fully priced in to LatAm markets, so we expect no significant immediate reaction when the trigger is pulled. But as markets gradually come around to our view that future U.S. rate risk is to the upside, markets will come under renewed pressure.
Last week, while we were taking our spring break at home, markets behaved relatively well in LatAm.
It has been a nasty start to the year for LatAm as markets have been hit by renewed volatility in China, triggered by the coronavirus.
Multiple factors have shaken LatAm financial markets this week. China's market turmoil, commodity price oscillations, currency volatility, and political mayhem in every corner of the region, have all conspired against markets. But market chaos has also driven some central banks to rethink their monetary policy plans. For EM, in particular for LatAm, the stance of the Federal Reserve is key, given the region's close ties to the U.S., and the dollar.
The medium-term outlook in most LatAm economies is improving, though economic activity is likely to remain anaemic in the near term. The gradual recovery in commodity prices is supporting resource economies, while the post-election surge in global stock prices has boosted confidence. But country-specific domestic considerations are equally relevant; the growth stories differ across the region.
The data in LatAm were all over the map while we were out.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
Consumption remains an important source of economic growth in LatAm.
LatAm assets have struggled in recent days as it has become clear that the Fed will hike next week. But we don't expect currencies to collapse, as domestic fundamentals are improving and the broader external outlook is relatively benign.
The apparent thaw in the U.S.-China trade dispute is great news for LatAm, particularly for the Andean economies, which are highly dependent on commodity prices and the health of the world's two largest economies
LatAm assets have done well in recent weeks on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD. A less confrontational approach from the U.S. administration to trade policy has helped too.
Global economic conditions have been improving for LatAm over recent quarters.
LatAm financial markets have performed solidly in the first sessions of the year, with most regional currencies trading more strongly against the USD.
In recent weeks LatAm's currencies and stock markets, together with key commodity prices, have risen as financial markets' expectations for a rate increase by the Fed this year have faded. The COP has risen 8.5% over the last month, the MXN is up 2.5%, the CLP has climbed 1.4% and the PEN has been practically stable against the USD. The minutes of the Federal Reserve's latest meeting added strength to this market's view, showing that policymakers postponed an interest rate hike as they worried about a global slowdown, particularly China, the strong USD and the impact of the drop in stock prices.
LatAm economies this year have faced a tough external environment of subdued commodity prices, weaker Chinese growth, the rising USD, and the impending Fed lift-off. At the domestic level, lower public spending, low confidence, and economic policy reform have clashed with above-target inflation, which has prevented central bankers from loosening monetary policy in order to mitigate the external and domestic headwinds. In these challenging circumstances, LatAm growth generally continues to disappoint, though performance is mixed.
The global coronavirus pandemic is hitting the LatAm economy at a particularly vulnerable time, following last year's stuttering economic recovery, temporary shocks in key economies and the effect of the global trade war.
The U.K.'s unexpected decision to vote to leave the E.U. will have serious ramifications for the global economy, and LatAm economies are unlikely to emerge unscathed. It is very difficult to quantify the short-term effects due to the intricacies of the financial transmission channels into the real economy.
LatAm currencies and stock markets have suffered badly in recent weeks, but Monday turned into a massacre with the MSCI stock index for the region falling close to 4%. Markets rebounded marginally yesterday, but remain substantially lower than their April-May peaks. Each economy has its own story, so the market hit has been uneven, but all have been battered as China's stock market has crashed. The downward spiral in commodity prices--oil hit almost a seven-year low on Monday--is making the economic and financial outlook even worse for LatAm.
Over the past 30 years China's role in LatAm and the global economy has increased sharply. Its share of world trade has surged, and its exports have gained significant market share in LatAm.
LatAm investors' concerns about U.S. monetary policy expectations and the broad direction of the USD should on the back burner until the Fed hikes again, likely in September. This will leave room for country-specific drivers to take centre stage. That should support Mexico's MXN, which already has risen 14% year-to-date against the USD, erasing its losses after the US election last November.
The sharp downtrend in commodity prices in recent months is alarming from a LatAm perspective.
External conditions are becoming more demanding for LatAm economies, with global trade tensions intensifying in recent weeks.
In about 100 days, the LatAm economy and financial markets will face a defining moment in the face of uncertainty, namely, the outcome of the U.S. presidential election.
Most central banks in LatAm have ended the year in a relatively comfortable position; their economies are improving and inflation is under control or even falling.
The truce in trade relations between the U.S. and China, agreed at the G20, is good news for LatAm, at least for now.
Commodity prices have started the year under further downward pressure. This is yet more negative news for LatAm, as most of the countries have failed to diversify, instead relying on oil or copper for a large share of exports and, critically, tax revenue. Venezuela is the biggest loser in the region from the oil hit, and, together with the worsening political and economic crisis, it has pushed the country even closer to the verge of collapse, threatening its debt payments. Venezuela's central bank last week released economic data for the first time since 2014, showing that inflation spiralled to 141% and that the economy shrank 4.5% in the first nine months of last year.
LatAm's economies are gradually rebounding, boosted by easier monetary policy in most countries, falling inflation, and a relatively calm external backdrop.
Selling pressure in LatAm markets after Donald Trump's election victory eased when the dollar rally paused earlier this week. Yesterday, the yield on 10- year Mexican bonds slipped from its cycle high, and rates in other major LatAm economies also dipped slightly.
LatAm assets did well in Q1, on the back of upbeat investor risk sentiment, low volatility in developed markets and a relatively benign USD.
Idiosyncratic developments have driven market volatility in LatAm in recent weeks.
The U.K.'s unexpected vote for Brexit means a stronger USD for the foreseeable future, pressure on EM currencies and increasing risk premiums. LatAm fundamentals will a sideshow for some time. The focus will be on the currencies, which will be the main shock absorbers.
We look for the Fed to increase rates today by 25bp to a range of 0.25%-to-0.50%. The FOMC will likely say that policy remains very accommodative and that rate hikes will be slow. Unfortunately, this will provide only temporary relief to LatAm. According to our Chief Economist, Ian Shepherdson, faster wage gains next year in the U.S. will disrupt the Fed's intention to move gradually. If wages accelerate as quickly as we expect, the Fed will need to raise rates more rapidly than it currently expects, which is also faster than markets anticipate. That, in turn, will put EM markets and currencies under further pressure.
Most LatAm currencies have been under pressure recently, with the Brazilian real and the Chilean peso breaking all-time lows versus the USD in recent weeks.
Recent global developments lead us to intensify our focus on trade in LatAm.
LatAm markets reacted well to the U.S. Fed's decision to increase the funds rate by 25bp, to 1-to-1¼%, on Wednesday. Currencies moved only slightly after the decision and asset markets were relatively stable. Yesterday, some currencies retreated marginally as investors digested the relatively hawkish message from the Fed and Chair Yellen's press conference.
LatAm's relatively calm market environment has been thrown into disarray over the last few weeks.New fears of a slowdown in China, political turmoil in the U.S. and, most importantly, the serious corruption allegations facing Brazil's President, Michel Temer, have triggered a modest correction in asset markets and have disrupted the region's near-term policy dynamics.
The Fed's 50bp rate cut last week, aiming to shield the U.S. economy against Covid-19, has opened the door for some central banks in LatAm to emulate the move.
LatAm markets and central banks have been paying close attention to developments in the U.S. The FOMC left rates on hold on Wednesday, as expected, but underscored its core view that inflation will rise in the medium-term, requiring gradual increases in the fed funds rate.
LatAm Cyclical Recovery is Set to Resume, but Threats Still Remain
Latam H1 2019 Outlook
Latam activity and markets are improving......but volatility will rise in Q4 due to global factors
The big four LatAm economies, Brazil, Mexico, Colombia and Chile, released September inflation this week and the data showed three clear--and contrasting--trends. Inflation is accelerating in the Andes, whereas the headline rate hit another historic low in Mexico. Inflation in Brazil is still the depressing outlier, with annual CPI inflation hovering around 9.5% year-over-year in recent months, well above the rates of its regional peers. But it is close to peaking, at last.
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
As it became clear that Donald Trump would beat Hillary Clinton to win the U.S. presidency, EM currencies came under severe pressure, fearing his economic and immigration policies. Some of the initial pressure is easing as markets digest the news and following Mr. Trump's conciliatory tone in his victory speech. But the proposals have been made and the MXN and other key LatAm assets likely will remain very stressed in the near term.
We expect growth in Latin America--except Mexico--to improve in 2017, especially during the second half...
In one line: Rates on hold as the economy falters.
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
President Trump tweeted yesterday that he wants to re-introduce tariffs on steel and aluminium imports from Brazil and Argentina, after accusing these economies of intentionally devaluing their currencies, hurting the competitiveness of U.S. farmers.
Weakness across EM asset markets returned after the April FOMC minutes, released last week, suggested that a June rate hike is a real possibility. The risks posed by Brexit, however, is still a very real barrier to Fed action, with the vote coming just eight days after the FOMC meeting.
Mexico's economy continues to withstand several headwinds, especially the sharp currency depreciation--shown in our first chart--falling commodity prices, and the tough external environment. The country is still one of the economic bright spots in the region, thanks to its resilient domestic demand. June retail sales rose 5.4% year-over-year, well above expectations, and up from 4.1% in May. The underlying trend is positive, averaging 4.8% in the second quarter, well above its 2014 pace.
A long period of extremely accommodative U.S. monetary policy generated sizable capital inflows and asset price appreciation in EM countries.
In one line: Rates on hold; trade tensions are a key risk to start policy normalization.
The sell-off in equity markets and increases in volatility have put EM assets under pressure. EM equities and bonds, however, have been outperforming their U.S. and global market counterparts.
In one line: Inflation pressures are starting to ease.
In one line: A tragic end to Q1, and worse is coming.
In one line: A sharp increase on the month, but underlying pressures remain tame.
In one line: A poor start to the year due to broadbased weakness.
In one line: Another ugly report, and Mexico's prospects have deteriorated significantly.
In one line: The economy did very badly in Q1, and risks are still tilted to the downside.
In one line: Inflation pressures are finally easing, but the MXN--that is, President Trump's actions--is the key variable now for policymakers.
Policymakers and governments are gradually deploying major fiscal and monetary policy measures to ease the hit from Covid-19 and the related financial crisis.
In one line: A bad-looking start to Q2, but the y/y rate was hurt by an unfavourable base effect.
In one line: The cautious approach continues as the economy struggles and uncertainty remains high
In one line: A big downside surprise.
While we were on holiday, the data confirmed that economies have been badly hit by the pandemic in Q2, and that the upturn will be gradual.
The Andean economies have been clear examples of true leadership in the current global crisis. Leaders of these countries acted rapidly to contain the spread of the virus, jumping right over the phases of denial, anger and unscrupulousness we've seen in Brazil and Mexico.
Latin American markets and policymakers are bracing for another complicated week, after the second, and more aggressive, Fed emergency move over the weekend.
Industrial production in Mexico surged 2.6% year-over-year in February, up from a 0.8% increase in January. A favourable calendar effect, however, is a key part of this story. Once adjusted for the leap year, which added an extra working day, industrial production rose only 0.8%, down from a 1.6% expansion in January.
Inflation data in Brazil, Mexico and Chile last week reinforced our view that interest rates will remain on hold, or be cut, over the coming meetings. The recent fall in oil prices, and the weakness of domestic demand, will offset recent volatility caused by the FX sell-off, driven mostly by the coronavirus story.
The global economy is heading towards a new scenario, triggered by the impending start of the monetary policy normalization process in the U.S. In some major economies, notably the Eurozone, the Fed's actions will not derail or even jeopardize the cyclical economic upturn.
A mix of political and economic events have triggered outflows of capital from emerging markets this year. Tensions in Europe, due to the "Grexit" saga, together with China's slowdown and concerns about Fed lift-off have weighed on EM flows. In recent months, though, some of the pressure on EM currencies has eased as the markets have come to expect fewer U.S. rate hikes in the near term.
The Fed deferred, but did not cancel, the start of its rate normalization last week. As a consequence, December is now the most likely meeting for the first hike. The Fed's core view of the U.S. economy remains the same, but policymakers want a bit more time to see how global developments affect the U.S. Our Chief Economist, Ian Shepherdson, expects the strength of the employment data, better Chinese numbers and calm financial markets to prevent any further postponement beyond Q4.
Mexican policymakers held an emergency meeting yesterday in the wake of DM easing, global fiscal stimulus, plunging oil prices, and the pandemic crisis, slashing interest rates to their lower level since early 2017.
Colombia was one of the fastest growing economies in LatAm in 2018, and prospects for this year have improved significantly following June's presidential election, with the market-friendly candidate, Iván Duque, winning.
Politics will be the key factor in LatAm over the coming quarters, as presidential and legislative elections take place throughout the region.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a dovish bias, and giving them room for further rate cuts.
EM risk sentiment remains grim as the Trump administration dispenses protectionist trade measures. LatAm's biggest economies, Brazil and Mexico, have been hit the hardest, with their currencies falling 3.3% and 2.2% respectively in the last week, the most in the EM world.
The data in LatAm have been all over the map in recent weeks.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
Chile's central bank, the BCCh, admitted defeat in the face of the inflationary effects of the CLP's depreciation, increasing interest rates by 25bp to 3.25% last Thursday, the first hike since mid-2011. Chile is the third LatAm economy in a month to increase rates in response to currency weakness, despite sluggish economic growth.
Inflation pressures in LatAm are moderating, and governments have been taking steps to pursue fiscal consolidation. These factors, coupled with a relatively favourable external environment, are providing policymakers with the opportunity to start relaxing monetary policy.
Three of the big LatAm economies-- Brazil, Colombia and Chile--released October inflation last week; the data are still showing the pass-through effects of currency depreciation during the first half of the year into prices, though, at different degrees. LatAm currencies have been hit by the weakness in commodity prices and negative sentiment towards EM generally.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a neutral or dovish bias, and giving them room for further rate cuts if the economic recovery falters in the near term.
Colombia's GDP report, released last week, confirmed that it was the fastest growing economy in LatAm and everything suggests that it likely will lead the ranking again this year.
Latam Prospects Are Gradually Improving....Easing Trade Tensions Are Helping
Colombia's peso has been one of the most battered currencies in LatAm this year, due mainly to the sharp fall in oil prices, the country's primary export. The COP has dropped about 23% this year against the USD. At the same time, other temporary factors, most notably the impact of El Niño on food prices, have done a great deal of inflation damage too. October's food prices increased 1.4% month-to-month, pushing the year-over-year rate up to 8.8% from an average of 6.6% in the first half of the year. Overall inflation has jumped to 5.9% in October from 3.8% in January, forcing BanRep's board to act aggressively.
Inflation pressures remain under control in most LatAm economies, allowing central banks to keep interest rates on hold, despite the challenging external environment.
It is still premature to make fundamental changes to our core views for the global or LatAm economy, following President Trump's plan to slap hefty tariffs on steel and aluminium imports, potentially escalating into a global trade war.
The tumultuous political and economic crises in Brazil continue to feed off each other, grabbing most of the LatAm headlines. Sentiment will remain depressed, and volatility and uncertainty will persist, hampering any real signs of stabilization in the near-term. The Pacific Alliance countries, by contrast, managed to grow at relatively solid rates during the first half of this year, after absorbing the hit from falling commodity prices.
Colombia's sluggish growth and near-term economic outlook resembles that of most other LatAm economies. Domestic demand is weak, credit conditions are tight, and confidence is depressed. The medium term outlook, however, is perking up, slowly.
Economic activity is rebounding in LatAm, but the recovery will be slow and uneven.
LatAm, particularly Mexico, has dealt with Donald Trump's presidency better than expected thus far. Indeed, the MXN rose 10.7% against the USD in Q1, the stock market has recovered after its initial post-Trump plunge, and risk metrics have eased significantly.
LatAm governments and central banks have been busy implementing additional measures to contain the spread of the virus, and acting rapidly to ease the effect on the economy.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
LatAm data in recent days have confirmed that efforts to contain the coronavirus, plunging global trade, and the collapse in oil prices, are dealing a severe economic and financial blow.
LatAm financial and FX markets have behaved relatively well in recent sessions, thanks to the array of monetary and fiscal measures taken to counter the severe risk-off environment.
The coronavirus ordeal continues in LatAm as a whole.
Fears of a Chinese hard landing have roiled financial and commodity markets this past year and have constrained the economic recovery of major raw material exporters in LatAm.
Latam's Recovery Started In Late Q2...But The Covid Shock Will Be Long-Lasting
Data released this week in LatAm are the last calm before the coronavirus storm.
Survey data have been signalling a resilient Brazilian economy in the last few months, despite the broader challenges facing LatAm and the global economy in 2019.
External Factors are Hurting Latam...But Most of the Domestic Economies Remain Sound
Latam started the second half strongly...But risks remain, politics in particular
The Busy Electoral Year in Latam is Over...But Political Uncertainty is Far From Over
Latam Recovery Remains Subpar...But Low Inflation Is Allowing Interest Rate Cuts
LatAm's growth outlook is deteriorating, despite decent domestic fundamentals and political transitions toward more market-oriented governments in some of the region's main economies.
Most countries in LatAm are now fighting a complex global environment; a viral outbreak of biblical proportions and plunging oil prices, after last week's OPEC fiasco.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
LatAm's economies are starting to expand at a relatively healthy pace, inflation is more or less under control and near-term growth prospects are positive.
Uncertainty about the U.S. economic and political outlook, following Donald Trump's presidential win, likely will cast a long shadow over EM in general and LatAm in particular. On the campaign trail, Mr. Trump argued for tearing up NAFTA and building a border wall.
This has been a very complicated week for LatAm policymakers, who are particularly uneasy about the performance of the FX market.
Last week's events highlighted the seriously challenging global environment for LatAm equities and currencies. Trading in Chinese shares was stopped twice early last week, after falls greater than 7% of the CSI 300 index reverberated around the world. Markets were calmer on Friday but the volatility nevertheless reminded investors that LatAm's economies are floating in rough waters and their resilience will be put to the test again this year. The Fed's policy normalization, the unwinding of the leverage in EM, the continued slowdown of the Chinese economy, low commodity prices and currency depreciation are all real threats across the continent.
Inflation is under control in most LatAm economies, and we expect headline rates to remain close to current levels in the very near term.
LatAm Politics Now Threatening Growth....Just As The Trade War Appears To Be Easing
Latam's economies are improving...but political risks are a big threat
Latam's economies remain resilient...but global threats still loom
Latam economies remain under strain...The case for interest rate cuts is building
External Conditions Are Helping Latam...But Political Risks Will Constrain The Rebound
LatAm domestic demand is stabilizing...fading political risk will help
Covid-19: A Savage Toll On Latam's Economy...Prospects Have Turned Bleak
Latam started the year in low gear...but expect a gradual acceleration in Q2 and Q3
A Dovish Fed is Helping Latam Policymakers...Rates to Remain on Hold
Latam Economic Prospects Are Improving...A Trade Deal Between The U.S. And China Will Help
Latam's recovery continues...but external threats have increased lately
LatAm fundamentals are improving...but shaky commodity markets highlight threats
The Latamrecovery continues...but the em financial rout has dented expectations
The Coronavirus Is A New Economic Threat....Bad News For Latam's External-Driven Economies
Latam Struggles in Q4 And Early Q1...But Improving Global Conditions Will Help
Latam Is Recovering From The Covid Shock...But Reversing The Hit Will Be Long And Painful
LatAm economic activity is stabilizing...but the recovery will be modest in Q3.
Volatility and risk will remain high in L atAm for the foreseeable future. President-elect Donald Trump's uncertain foreign policies could have a considerable impact on LatAm economies in the months and years ahead.
Latam Economies Will Remain Resilient in Q4...But Idiosyncratic Factors are Rising Red Flags
This week's Fed meeting eased many LatAm investors' minds, fuelling rallies in most of the region's currencies. We think the U.S. labour market is going through a genuine soft patch but will regain momentum over the coming months, prompting policymakers to hike rates in September.
The ramifications of continued disappointing Asian growth, particularly in China, and its impact on global manufacturing, are especially hard-felt in LatAm.
This week's Monetary Policy Committee meetings in Chile, Mexico and Colombia look set to dominate market events in LatAm. On Friday, we expect Mexico's Banxico to keep rates on hold at 3.75%, after its unexpected 50bp increase in mid-February. At that time, the board cited growing concerns about financial markets, Mexico's weakened currency, and the country's fiscal situation, as reasons for its move.
LatAm currencies fell sharply in Q1 but the hit hasn't yet pushed inflation higher.
The manufacturing indexes for January showed a small improvement for the biggest economies in LatAm: Brazil and Mexico. In Brazil, the PMI manufacturing index increased marginally to 50.7 in December from 50.2 in November, thanks to stronger output and new orders components, which rose together for the first time in ten months.
• U.S. - Job losses set to breach 10M in just a few weeks. • EUROZONE - Who will pay for the Covid-19 stimulus in the EZ? • U.K. - The private sector's balance sheet is in good shape to take on the lockdown • ASIA - Covid-19 is worse for China than the financial crisis • LATAM - The data supported rate cuts in LatAm even before coronavirus
Investors will increase their focus on exchange rates as the US presidential election and the Fed's next rate hike approach. Markets are becoming concerned that a surge in the USD could trigger another spike in LatAm currency volatility, depressing the good year- to-date performance of most local market assets.
Industrial activity in LatAm, at least in the largest economies, is taking different paths.
More evidence indicating that the recovery in global industrial activity is underway and gaining momentum- has poured in. In particular, trade data from China, one of LatAm's biggest trading partners, was stronger than the market expected last month. Both commodity import and export volumes increased sharply in January, and this suggests better economic conditions for China's key trading partners.
LatAm markets reacted relatively well to the Fed's rate hike on Wednesday, which was largely priced-in. The markets' cool-headed reaction bodes well for Latam central banks. But it doesn't mean that the region is risk-free, especially as Mr. Trump's inauguration day draws near.
Andres Abadia named top Latam FX Forecaster for 2017 by Reuters
• U.S. - Markets now await Iran's inevitable response • EUROZONE - Still soft, but also stabilising, EZ PMIs • U.K. - Strong balance sheets means that recessions risks are remote • ASIA - Useful Chinese Hukou reforms, but looser financial conditions are still needed • LATAM - The outlook is improving in LatAm as trade tensions ease
August inflation surprised to the downside across most of LatAm, as food price surges proved transitory, and the lagged effect of the FX depreciations last year faded. Brazil appeared to be the exception last month, but the underlying trend in inflation is downwards.
The recovery of some key commodity prices, policy action in China, and stronger expectations that the U.S. Fed will start hiking rates later during the year, have helped reduce volatility in LatAm financial markets. Oil prices have rise by around 20% year-to-date, iron ore prices are up about 60% and copper has risen by 7%.
The U.S. Presidential election will set the tone for LatAm's markets this week. Hillary Clinton's dwindling lead over Donald Trump in recent polls has unleashed pressure on EM assets.
The Colombian economy--the star of the previous economic cycle in LatAm--is now slowing significantly, due mostly to strong external headwinds. Exports plunged by 40% year-over-year in January, down from -29% in December, with all of the main categories contracting in the worst performance since 1980.
Recent global developments lead us to intensify our focus on trade in LatAm.
Most LatAm currencies traded higher against the USD yesterday, adding to the gains achieved after Donald Trump's inauguration last Friday. The MXN, which was the best performer during yesterday's session, was up about 0.8%; it was followed by the CLP, and the BRL. The positive performance of most LatAm currencies, especially the MXN, is related to positioning and technical factors.
Last week's data supported our view that monetary policy across LatAm will continue to diverge in the short term. Brazil will have to prolong its monetary tightening cycle, while economies such as Colombia and Chile will remain on hold despite the recent slowdowns in their economic cycle.
• U.S. - No need for the Fed to ease this year • EUROZONE - The big picture in the EZ economy • U.K. - The MPC will hold rates steady, despite chatter of a cut • ASIA - Chinese GDP growth didn't recover in Q4, but it probably stabilised • LATAM - No serious inflation threat for Brazil in 2020
With the exception of Mexico, November inflation was or below expectations in LatAm. Mexico's overshoot increases the likelihood that Banxico will hike its reference rate at the next board meeting on December 20.
• U.S. - The second wave is easing, but it isn't over yet • EUROZONE - August EZ PMIs were poor, but not terrible • U.K. - Inflation will fall further, despite the jump in July • ASIA - A narrow recovery for China's economy in Q3 • LATAM - Weak growth and low inflation as far as the eye can in LatAm
Chief Latam Economist Andres Abadia on Argentina
Chief LatAm Economist Andres Abadia on the Argentina Election
The Mexican economy gathered strength in Q3, due mainly to the strength of the services sector, and the rebound in manufacturing, following a long period of sluggishness, helped by the solid U.S. economy and improving domestic confidence.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Recent inflation and activity data in Mexico were dovish.
Colombia's central bank has found a relatively sweet spot.
Chile's central bank left its policy rate on hold last Friday at 3.0%, in line with market expectations, amid easing inflationary pressures and a struggling economy.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
Mexico's industrial sector did relatively well in Q3, due mainly to the resilience of the manufacturing sector, and the rebound in construction and oil output, following a long period of sluggishness.
Data released in recent days have supported our base case for further interest rate cuts in Mexico over the coming meetings.
Data released in recent days have started to reveal a story of horror and misery in the Brazilian economy.
CPI data in Colombia released on Saturday confirmed that inflation is well under control, due to plunging domestic demand on the back of Covid, and despite the lagged effect of the COP depreciation earlier this year.
Economic conditions in Brazil are deteriorating rapidly.
Yesterday's minutes of the February 4-to-5 COPOM meeting, at which Brazil's central bank, the BCB, cut the benchmark Selic rate by 25bp to 4.25%, reaffirmed the committee's post-meeting communiqué.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
Mexico's latest forward-looking indicators are showing tentative signs of stabilisation in the wake of recent evidence that growth slowed quicker than markets have been expecting.
Recent activity data in Mexico have been soft and leading indicators still point to challenging near-term prospects, due mainly to relatively high domestic political risk, stifling interest rates and difficult external conditions.
Brazil's inflation rate is in double digits for the first time in 12 years. The benchmark IPCA price index rose 1.0% month-to-month in November, lifting the year-over-year rate to 10.5%, the highest since November 2003. The core IPCA increased 0.7% month-to-month, pushing the year-over-year rate in November up to 8.9% from 8.6% in October.
Data released on Friday showed that November inflation was in line with, or below, expectations in Brazil, Colombia and Chile.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
Economic Activity Remains Sub-Par... But Downside Risks are Gradually Easing
The BRL remains under severe stress, despite renewed signals of a sustained economic recovery and strengthening expectations that the end of the monetary easing cycle is near.
The massive hit from low oil prices, Covid-19 and President AMLO's willingness to call snap referendums on projects already under construction is putting pressure on Mexico's sovereign credit fundamentals and ratings.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
The coronavirus pandemic is wreaking havoc in Brazil.
The Recovery Gathered Speed in Q4...But External Chaos Has Hit Domestic Markets
Recent polls in Argentina suggest that Alberto Fernández, from the opposition platform Frente de Todos, has comfortably beaten Mauricio Macri, to become Argentina's president.
Data released on Friday in Mexico strengthened the case for further interest rate cuts in Q3. The monthly IGAE economic indicator for April, a proxy for GDP, plunged 19.9% year-over-year, a record drop since the series started in 1993, and down from -2.3% in March.
Mexico's political panorama seems to be becoming clearer, at least temporarily. This should dispel some of the uncertainty that has been hanging over the economy in recent months.
Brazil's current account deficit rose to USD6.9B in April, from USD5.8B in March. The deficit totaled USD100.2B, or 4.5% of GDP on a 12-month rolling basis, marginally better than 4.6% in March; the underlying trend is flat. The services and income accounts improved slightly compared to April last year.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
While we were out, data released in Mexico added to our downbeat view of the economy in the near term, supporting our base case for interest rate cuts in the near future.
Recently released data in Colombia signal that the economy ended last year quite strongly.
Chile's stronger-than-expected industrial production report for December, and less-ugly-than- feared retail sales numbers, confirmed that the hit from the Q4 social unrest on economic activity is disappearing.
A Gradual Economic Recovery Continues...But Downside Risks Prevail
The economy is still under strain...but downside risks are gradually easing
Inflation in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
The Covid Shock Seems To Be Easing....But The Economic Upturn Will Be Slow And Bumpy
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
Economic Activity Was Poor In Q1...But We See Encouraging Signs Of Gradual Rebound
Domestic fundamentals are improving...despite rising political and protectionist threats
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
Andean economies are gathering strength...while larger countries are facing mounting risks
Mexico's central bank, Banxico, last night capitulated again to the depreciation of the MXN and increased interest rates by 50bp, for the third time this year. This week's rebound in the currency was not enough to prevent action.
Economic activity remains sluggish...and prospects are grim, due to the trade war
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
Brazil's external accounts were a relatively bright spot again last year.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
Data Are Starting To Show The Covid Shock...Q2 Will Be A Write-Off
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
Data released on Friday confirmed an appalling end to the first quarter for the Brazilian and Colombian economies. In Brazil, the March IBC-Br, a monthly proxy for GDP, plunged 5.9% month-to-month, close to expectations.
Polls suggest that Ivan Duque has comfortably beat Gustavo Petro to become Colombia's president.
Activity in Colombia cooled at the end of the first quarter, in the face of many domestic and external headwinds. Retail sales, for example, plunged 2.9% in March after a 4.6% leap in February. The headline likely was depressed by the early Easter, as March had one fewer trading day than February.
Argentinians are heading to the polls on Sunday October 27 and will likely turn their backs on the current president, Mauricio Macri.
Brazil is back on global investors' radar screens. Financial market metrics capture a relatively robust bullish tone, especially since the presidential election.
The ongoing weakness in DM has been a feature of the global landscape over the last year.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively weak footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month- to-month, pushing down the adjusted year-over- year rate to 0.3%, from a downwardly-revised 0.7% increase in November.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
The economic calendar in Mexico was relatively quiet over Christmas, and broadly conformed to our expectations of poor economic activity in Q4.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
Brazil's industrial sector is on the mend, but some of the key sub-sectors are struggling.
Mexico's economic and financial outlook is deteriorating rapidly and hopes of a gradual recovery over the next three-to-six months are fading away after AMLO's missteps in recent months.
Economic activity in Chile in the first half of the year is now a write-off, due to Covid-19. The country is in a deep recession, and the impact of lockdowns on labour markets and businesses will cause long-lasting economic damage, which will hold back the recovery.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Economic conditions are deteriorating rapidly in Chile, despite the relatively decent Imacec reading for Q3.
Chile's Q3 GDP report, released yesterday, confirmed that the economy gathered speed in the third quarter, but this is now in the rearview mirror.
Brazil's external position continue to improve, but we are sticking to our view that further significant gains are unlikely in the second half, given the stronger BRL. For now, though, we still see some momentum, with the unadjusted trade surplus increasing to USD7.2B in June, up from USD4.0B a year earlier. Exports surged 24% year-over-year but imports rose only 3%.
Banxico cut its policy rate by 25bp to 7.25% yesterday, as was widely expected, following similar moves in August, September and November.
Data on Friday showed that the downward trend in Brazil's unemployment continued into this year. The unadjusted unemployment rate fell to 11.2% in January, slightly below the consensus, and down from 12.0% in January last year.
Prospects for further rate cuts in Brazil, due to the sluggishness of the economic recovery and low inflation, have played against the BRL in recent weeks.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
Policymakers in Brazil and Chile took another big step this week in assuring markets that they won't hesitate to act in the fight against the virus.
Data released this week in Brazil underscored that the Covid-related shock on the industrial sector is finally easing, as the economy gradually reopens.
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
The Argentinian economic recovery continues, from very depressed levels, and the rebound is confronting many setbacks.
Friday's June inflation data in Brazil confirmed that the ripples from the worst of the Covid shock were still being felt at the end of the quarter.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
Monday will see 5% tariffs going into effect on Mexican exports to the U.S.--which totalled about USD360B last year--unless President Trump steps back from the brink.
Brazil's industrial sector was off to a soft-looking start in Q1, but the fall in January output was chiefly payback for an especially strong end to 2017.
Chile's market volatility and high political risk continue, despite government efforts to ease the crisis.
The key story in Brazil this year remains one of gradual recovery, but downside risks have increased sharply, due mainly to challenging external conditions.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Economic growth in Chile slowed in Q1, despite a relatively strong end to the quarter, and the chances of an accelerating recovery remains disappointingly low, due to both global and domestic headwinds.
Pedro Kuczynski, the centre-right candidate of the Peruvians for Change party, won the presidential election held in June 5th. Mr. Kuczynski, a former finance minister and World Bank economist, defeated Ms. Keiko Fujimori, the candidate of the conservative Fuerza Popular party, and the daughter of jailed former leader Alberto Fujimori. Mr. Kuczynski's margin of victory over Ms. Fujimori was fewer than 43K votes, or just 0.2%.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
Survey data have been signalling a relatively resilient Brazilian economy in the last few months, despite intensified political risk, and hard data are beginning to confirm this story.
Economic conditions remain challenging in Mexico, despite a modest improvement in leading indicators. The usual surveys currently are not well-suited to capture the economy's upturn from the Covid-19 collapse.
Data released on Wednesday, along with the BCB's press release on Tuesday, supported our longstanding forecast of further rate cuts in Brazil in the very near term.
It was no surprise that Banxico cut its policy rate by 25bp to 7.00% yesterday, following similar moves in August, September, November and December.
Brazil's inflation rate remained well under control over the first half of February.
Economic news last week in Mexico was net positive, as industrial production rose by a solid 6.9% month-to-month, following a 17.9% rebound in June, but the bigger picture is less encouraging.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
The two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
Data released yesterday from Brazil support our view that the economic recovery continues, but progress has been slow.
Sentiment has been improving gradually in Mexico in recent weeks, reversing some of the severe deterioration immediately after the U.S. presidential election. Year-to-date, the MXN has risen 10.3% against the USD and the stock market is up by almost 8%. We think that less protectionist U.S. trade policy rhetoric than expected immediately after the election explains the turnaround.
The Brazilian Central Bank's policy board-- COPOM--met expectations on Wednesday, voting unanimously to cut the Selic rate by 25bp to 2.00%.
The busy electoral calendar that lies ahead for the region is beginning to come into focus. Colombia kicks off the process, followed by Mexico and Brazil.
Chile's near-term economic outlook is still negative, but clouds have been gradually dispersing since late Q4, due mostly to better news on the global trade front, China's improving economic prospects, and rising copper prices.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
The Brazilian central bank cut the benchmark Selic interest rate by 25bp, to 4.25%, on Wednesday night, as expected.
The new Argentinian president, Alberto Fernández, will have to make a quick start on the titanic task of cleaning up the economic and social mess left by his predecessor, Mauricio Macri.
In one line: A modest and expected increase; underlying inflation is stable.
In one line: A sharp fall helped by a favourable base effect; underlying pressures are tame.
In one line: Inflation is under control; no immediate threats here.
In one line: Inflation edged lower in August, leaving the door open for further interest rate cuts.
In one line: Disinflation resumes as the economy falters.
In one line: A modest upturn is underway, but the overall picture remains bleak.
In one line: A modest increase, but underlying inflation is stable.
In one line: Domestic-driven inflation remains tame.
In one line: Overshooting consensus, due to Covid-19 hit?
In one line: Inflation ended 2019 above the target, due mainly to the meat-price shock.
In one line: Undershooting consensus, inflation pressures are tame.
In one line: Underlying pressures will remain low, despite the food-related shock.
In one line: Inflation falls sharply helped, by a favourable base effect and a sluggish economic recovery.
In one line: Undershooting expectations, and further opening the door to a final rate cut in August.
In one line: Overshooting consensus, but underlying pressures are still modest.
In one line: Low inflation keeps the door open for further rate cuts.
In one line: Underlying pressures are modest, and food prices are starting to stabilise.
In one line: Weak, but the full hit will come in April.
In one line: Inflation is well under control; the BCB will cut rates next week.
In one line: Beef prices drive up inflation, but underlying pressures will remain low.
In one line: No serious inflation threats, at least for now.
In one line: A sharp increase, but due mainly to temporary factors.
In one line: Well-behaved inflation in September supports the case for further monetary easing.
In one line: Brazil inflation is well under control.
In one line: Low energy prices, and plunging domestic demand, push inflation to cyclical lows.
In one line: A modest increase in line with expectations; inflations pressures in check.
In one line: Low inflation due to the Covid-19 shock.
In one line: An ugly end to the first quarter, but output likely will stabilize in Q2.
In one line: The solid industrial upturn continues, but from a depressed level, and risks remain.
In one line: A soft start to the quarter, but leading indicators point to a decent Q3 as a whole.
In one line: A good start to the year, but the virus will be a big drag.
In one line: A solid rebound, but still a long way to full recovery.
In one line: Terrible, and more pain is coming.
In one line: Weak, but expect better data ahead.
In one line: Still terrible, but a slow upturn is emerging.
In one line: The modest industrial recovery continues, but Covid-19 will make things worse.
In one line: Struggling, and external conditions point to challenging times ahead.
In one line: Low inflation still gives the BCB board room for manoeuvre.
In one line: A marginal improvement in manufacturing, offset by poor mining activity.
In one line: Political uncertainty will weigh on the economy in Q4.
In one line: A soft start to Q2, following an ugly Q1.
In one line: A strong m/m increase, but downside threats remain.
In one line: Terrible data, and the near-term outlook is grim.
In one line: A decent start to Q4 for the industrial sector.
In one line: Sluggish, but production rose in Q3.
In one line: Terrible, but a modest upturn in key sectors is emerging.
In one line: Ugly, and worse is to come.
In one line: Manufacturing gain fails to offset weakness elsewhere.
In one line: A weak headline, but the details are not as grim.
In one line: A poor start to the fourth quarter, due to broad-based weakness.
In one line: Grim, due to Covid-19, but a modest recovery likely will emerge in Q3.
In one line: Manufacturing remains resilient, but downside risks looms.
In one line: Undershooting expectations, but we expect a modest rebound in Q3.
In one line: Manufacturing is leading the rebound.
In one line: Terrible, but this is possibly the bottom.
In one line: Ignore the un-adjusted headline; production did well at the start of Q2.
In one line: A mixed industrial picture; manufacturing output is weakening, but other sectors seem to be reviving.
In one line: A soft end to the year, but the underlying trend is stabilizing.
In one line: Resilient manufacturing output offsets weakness elsewhere.
A decent start to the year, but the coronavirus hit to the economy is looming.
In one line: Struggling, but the second half of the year will be better.
In one line: An expected rebound in the jobless rate, despite plunging participation
In one line: A good start to the second quarter but downside risks remain.
In one line: A weak report, but Q3 as a whole was decent.
In one line: A solid rebound, but downside risks remain.
In one line: A soft end to the year, but consumption likely will improve slightly in Q1.
In one line: Decent momentum in private consumption, but threats are rising.
In one line: Robust, but downside risks remain.
In one line: A soft Q1, and the outlook remain challenging.
In one line: A poor first quarter for retailers.
In one line: Stronger than expected, but threats persist.
In one line: A solid rebound, but the overall consumer picture remains grim.
In one line: A decent report boosted by Black Friday sales and severance funds.
In one line: A good report; on track for another solid quarter.
In one line: Poor, growth slowed rapidly in Q2.
In one line: A strong Q3 and upside risks to private consumption looking forward.
In one line: A decent rebound, but risks remain.
In one line: Poor and downside risks remain.
In one line: Unemployment nudges higher in Q3.
In one line: The gradual recovery of the labour market continues.
In one line: The labor market is gradually deteriorating.
In one line: A substantial improvement, but not in line with fundamentals.
In one line: Good industrial production numbers; the labour market is still struggling.
In one line: A substantial improvement, but it's temporary; a sharp jump is looming.
In one line: A collapsing participation rate prevents a sharper deterioration in unemployment.
In one line: The labour market will deteriorate soon.
In one line: A modest deterioration of the labour market but the real pain is around the corner.
In one line: Resilience in private spending, but the weakness of the labour market is a risk.
In one line: The slow recovery of the Brazilian labor market continues.
In one line: A solid end to 2019 for Brazil's labour market.
In one line: The improvement continues.
In one line: Improvement continued through February, but the labour market will deteriorate soon.
In one line: Poor, but April will be much worse.
In one line: A solid m/m increase; the quarter as whole should be decent.
In one line: Terrible, but this likely will be the bottom.
In one line: An unexpected fall, strengthening BCCh doves.
In one line: A sharp m/m rebound, but it won't impede a rate cut in December.
In one line: Stabilising, but a long and painful road to full recovery.
In one line: A bold cut to help the economic recovery, more to come.
In one line: A modest rate cut, and the COPOM signals the end of the easing cycle.
In one line: A bold cut, and further easing in Q1 is live.
In one line: A modest m/m increase, but the CLP sell-off in November poses upside risks.
In one line: Underlying pressures under control due to Covid-19.
In one line: Underlying pressures are tame, despite the CLP sell-off in early Q4.
In one line: The Covid shock is keeping key components at bay.
In one line: Ugly; but pressures likely will ease in the near term.
In one line: A sharp rebound, but the weakness of growth and fading one-time shocks will cap inflation soon.
In one line: The Covid shock is keeping underlying inflation pressures under control.
In one line: Pressures are well under control; the BCCh to remain on the sidelines, for now.
In one line: A bolder-than-expected rate cut, and more action is coming.
In one line: On hold, but the door is still open for more easing if needed.
In one line: Extremely ugly, but this likely will mark the floor.
In one line: Another signal of feeble economic activity
In one line: A modest increase, but an uptrend is consolidating.
In one line: A good start to Q3.
In one line: Demand was stuttering even before Covid-19.
In one line: A poor finish to 2019, but we expect a modest recovery in Q1.
In one line: The economy was on the mend before the virus, but Covid-19 will hit hard.
In one line: The economy is on the mend, unevenly.
In one line: On hold for now; progress on pension reform is the key.
In one line: Likely the final rate cut, but the door is still open for more easing if needed.
In one line: A bold rate cut, and the door for more action has been left slightly open.
In one line: A bold rate cut, and the COPOM will act again if required.
In one line: Another bold cut and more stimulus is likely.
In one line: Another bold cut, but the easing cycle is nearly over.
In one line: Brazilian inflation is well under control, giving the COPOM room for manoeuvre.
In one line: Inflation pressures in check, allowing Banxico to cut interest rates further.
In one line: Rates on hold, and the statement suggests no easing in the near term.
In one line: Another hefty cut as the economy is heading for a deep recession.
In one line: A surprise hefty rate cut; policymakers respond to the subpar recovery and trade war fears.
In one line: A bold rate cut, and more to come.
In one line: Adopting a dovish stance as the economy fails to gather speed.
In one line: On hold for the foreseeable future.
In one line: On hold; and in no rush to move rates in the foreseeable future.
In one line: On hold, but the BCRP will cut rates soon.
In one line: Low interest rates for the foreseeable future.
In one line: Another hefty cut as the economy struggles, and the door is open to further stimulus.
In one line: A bold rate cut, and more will be needed, despite a cautious Board.
In one line: A bold rate cut, and more action is coming.
In one line: More rate cuts on the horizon as the economy weakens.
In one line: Joining the party with a bold rate cut.
In one line: On hold at the technical low; the recession is ongoing.
In one line: Rates on hold, due to uncertainty about inflation and the CLP.
In one line: Low interest rates at cyclical lows; no rush to change the bias.
In one line: On hold at the technical low for the foreseeable future, and more QE.
In one line: On hold; and in no rush to move rates in the foreseeable future.
In one line: On hold, but the coronavirus is a threat.
In one line: Underlying pressures are in check, despite the modest uptick in headline inflation.
n one line: A Covid-19-related rebound, but we expect declines in Q3 due to the recession.
In one line: Underlying inflation pressures are falling, and we expect further declines across the year due to the recession.
In one line: Inflation edges lower to Baxico's target, and the downtrend will continue.
In one line: Sentiment remains resilient, but that won't last.
In one line: Headline up, but core down.
In one line: A downside surprise, and the underlying trend is falling, for now.
In one line: Consumers remain gloomy.
In one line: A sharp Covid-related increase, but the large output gap should push inflation down soon.
In one line: Disinflation will resume in Q2; core pressures are easing
In one line: On hold, but ready to cut if the economic recovery falters.
In one line: Policymakers surprise markets by cutting rates.
In one line: On hold; playing it safe due to the PEN sell-off, but rate cuts loom.
In one line: Inflation pressures easing sharply; consumers were struggling even before the virus.
In one line: Tame underlying inflation pressures; terrible real sales.
In one line: A sharp increase, but we still expect infation to fall soon.
In one line: Inflation falling rapidly as the economy comes under severe strain.
In one line: The easing cycle will continue; the economy is weakening rapidly.
In one line: Rate cuts are looming as the economy loses momentum.
While we were away, EM growth prospects and risk appetite deteriorated significantly, due mainly to rising geopolitical risks, weaker economic prospects for DM, and, in particular, the most recent chapter of the global trade war.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
Colombia's July activity numbers, released on Friday, portrayed still-strong retail sales and a reviving manufacturing sector, with both indicators stronger than expected.
While we were away, EM growth prospects and risk appetite deteriorated, due mainly to rising geopolitical risks and Turkey's currency crisis.
Central banks in Mexico, Colombia and Chile raised interest rates last week in tandem with the Fed, underscoring the almost mystical importance of the FOMC's actions in Latin America. In Colombia and Chile, their decisions were also helped by rising inflation pressures, due mainly to pass-through effects from currency depreciation.
The sharp drop in commodity prices, especially oil prices, has dampened the growth prospects for most countries in Latin America. But the most damage, so far, is in the currencies, which have dropped sharply.
Latin American markets have been relatively resilient this year, despite Fed tightening and high global political risks. The LACI index has risen more than 5% year-to-date, and the MSCI index has been trending higher since late last year.
No surprises from Chile's central bank last week, after leaving rates unchanged for the third consecutive month, in the light of recent data confirming the sluggish pace of the economic recovery. In the communiqué accompanying the decision, the BCCh kept their tightening bias, signaling that rates will rise in the near term.
Peru's central bank kept the reference rate unchanged at 3.5% at Thursday's meeting, in line with our view and market expectations.
Central banks in Chile, Peru, and Mexico hogged the market spotlight last week. Chile left its main interest rate at 3.0% on Thursday, for the fourth consecutive meeting.
Yesterday's CPI report in Mexico confirmed that headline inflation edged higher, to 5.0% in September from 4.9% in August, as the mid-month inflation index suggested.
Brazilian inflation hit its lowest rate in almost seven years in March, while Mexico's rate is the highest since July 2009. Yet we expect Mexico to tighten policy only modestly in the near term, while Brazil will ease rapidly.
Mexican manufacturing sector kicked off the year on a soft note, due mainly to the sharp drop in oil prices, and the sharp weather-induced slowdown in the U.S. Mexico's northern neighbor is its largest trading partner, by far, accounting for about 85% of total exports last year and close to 80% of total non-oil exports.
Inflation appears no longer to be an issue for Mexican policymakers. The annual headline rate slowed to 3.0% year-over-year in February from 3.1% in January, in the middle of the central bank's target range, for the first time since May 2006.
Mexican inflation pressures eased towards the start of Q2. Inflation fell to 2.5% year-over-year in April from 2.6% in March, due to a sharp fall in energy inflation--as a result of the introduction of new electricity tariffs in the warm season--and a fall in the rate of increase of fresh food prices. Depressed energy prices will continue to constrain inflation in coming months, but base effects will reduce the drag later this year.
We have set out in recent Monitors the differences in the economic and political environment across Latin America, but the plunge in oil prices adds a new element to the analysis.
Last week, Banxico, the BCCh and the BCRP all left their reference rates on hold. Their currencies have remained relatively stable in recent months and inflation pressures are under control. In Mexico, Banxico has adopted a more discretionary approach, following two 50bp hikes this year.
On Monday we highlighted the grim state of the Brazilian industrial sector, where output fell by a huge 5.8% year-over-year in November. By contrast, the outlook for Mexico's industrial sector is much brighter.
Tomorrow, Mexico's INEGI will release its inflation report for the second half of May, which is of key importance for Banxico's monetary policy. The Bank, in particular governor Agustin Carstens, has said on many occasions that it will watch external conditions and their impact on consumer prices closely. We expect inflation to edge down to 2.9% year-over-year in May, thanks to a 0.1% increase in the second half.
Brazil's central bank is in a very delicate situation. The economy is on the verge of another recession, but at the same time the BRL is falling, inflation expectations are rising and the inflation rate is overshooting. Fiscal policy is also tightening to restore macro stability magnifying the squeeze on growth.
In one line: Another cut, and more to come.
In one line: A surprisingly modest rate cut, despite suffering the worst economic contraction ever.
In one line: On hold, but challenging external conditions will force BanRep to cut rates in late Q4 or Q1.
In one line: On hold, patience persists.
In one line: On hold and on the sidelines in the near term due to high uncertainty.
In one line: A modest rate cut, and most of the Board is cautious.
In one line: A bold rate cut, and more to come thanks to Covid-19.
In one line: A modest rate cut, by a cautious Board.
In one line: Fernández victory presages dramatic change in Argentina; but a balanced Congress gives slight room for optimism.
In one line: Surprisingly resilient, but Banxico will continue cutting rates.
In one line: A modest m/m fall, but the trend likely will stabilise soon.
In one line: A surprising upward revision, but the recession will worsen sharply in Q2.
In one line: Weak even before the full hit from Covid-19.
In one line: Early signs of stabilisation, but the rebound remains fragile.
In one line: A soft start to the second half of the year; Banxico will continue cutting rates.
In one line: The bottom, but expect a long and slow climb ahead.
In one line: Low oil prices and the recession push inflation down to cyclical lows.
In one line: Avoiding a technical recession by small margin.
In one line: A decent Q1, but Q2 will be terrible.
In one line: A soft Q1, and the outlook remain challenging.
In one line: A poor start to the year and the worse is coming.
In one line: A solid rebound but the trade war remains a key risk.
In one line: Robust, but backward-looking; Q4 will be grim.
In one line: A sharp contraction in Q1, but the economy is set to shrink much more rapidly in Q2.
In one line: A soft start to the year, but we expect better numbers ahead.
In one line: Q4 hit by the protest, 2020 will be thrashed by Covid-19
In one line: A weak end to the year, due to falling industrial activity.
In one line: Disappointing, and the outlook remains challenging due to high external risks.
In one line: Weak, and the details are much worse than the headline.
In one line: A soft headline and a near-term misery looms.
In one line: Social unrest puts the economy on its knees.
In one line: A poor start to the third quarter and downside risks remain.
In one line: Horrible, but likely the floor.
In one line: Slightly better than expected, but the road to full recovery will be long.
In one line: Disappointing, and the outlook remains challenging due to high external risks.
In one line: An ugly headline, but the detail are not as horrible.
In one line: Resilient, but downside risks are emerging .
In one line: A solid end to the year, but downside risks have increased lately.
In one line: Terrible, but the pain is easing.
In one line: Awful, and mostly pre-Covid.
In one line: Capex is struggling; the outlook remains challenging.
In one line: A modest upturn, but downside threats have increased recently.
In one line: An ugly start to the fourth quarter; expect more weakness ahead.
In one line: Inflation falls close to target, allowing Banxico to cut rates.
In one line: Soft industrial data, and external conditions for EM economies are becoming increasingly challenging
In one line: Poor headline; investment remains a drag.
In one line: A poor start to Q3; investment will remain a drag in the near term.
In one line: Grim, and more pain is coming.
In one line: A resilient economy despite many shocks.
In one line: A decent end to 2019, but plunging capex and the coronavirus are threats.
In one line: A poor start to the year and the worse is coming.
In one line: A severe shock in Q2, but near-real-time data signal a sustained expansion ahead.
In one line: Consumption and capex boosted GDP growth last quarter.
In one line: A weak-looking report but hit by calendar effects; capex will stabilise as uncertainty fades.
In one line: Poor capex in Q3, and consumer confidence is deteriorating.
In one line: Economic activity its rebounding following the social unrest.
In one line: The first q/q fall since 2016 due to an array of domestic and external challenges.
In one line: Terrible, but a gradual upturn likely will emerge in late Q2.
In one line: Modest inflation pressures amid subpar economic activity.
In one line: Inflation is well under control, around Banxico's target.
In one line: A poor start to 2020 for Mexico, even before Covid-19.
In one line: An ugly start to the second quarter, despite a modest improvement in sectoral data.
In one line: A soft end to the year, but the modest recovery continues.
In one line: The modest uptrend continues.
In one line: Worst monthly contraction ever, but it soon will hit the floor.
In one line: Inflation tame on the back of the Covid-19 shock.
In one line: A sharp increase, but the recession will keep inflation stable over H2.
In one line: Underlying inflation pressures continue to ease.
In one line: Terrible numbers, but likely marking the floor.
In one line: Temporary upside inflation pressures as the economy reopens.
In one line: Bad weather has pushed inflation up, temporarily.
In one line: Undershooting consensus; Banxico to cut rates next week.
In one line: Lower energy prices push inflation down at the end of Q2.
In one line: An expected modest increase, but inflation should fall later in Q3.
In one line: The Brazilian economy was gathering strength before Covid-19.
In one line: Core inflation is finally edging down.
In one line: Soft start to the third quarter; the trade war is a huge drag.
In one line: Great, but rising external risks suggest that the recovery will stutter.
In one line: A decent end to the year as the hit from the social unrest eases.
In one line: A surprising rebound in activity.
In one line: A good start to Q3.
In one line: The first signs of the coronavirus hit; more pain to come.
In one line: A modest rebound, but the trend is improving.
In one line: Non-mining activity collapses in April; Q2 is a write-off.
In one line: A decent start to the year, but the good news won't last.
In one line: A marginal improvement, but poor mining activity remains a drag.
In one line: A solid start to the year, but Q2 will be awful.
In one line: A modest improvement; the road to full recovery will be long and painful.
In one line: A decent improvement, and we expect further good news ahead.
In one line: Better domestic conditions offset by rising external risks.
In one line: Solid, and further gains likely in coming months.
In one line: The modest recovery is on track, but risks remain.
In one line: The recovery continues; risks are titling to the upside.
Colombia is one of the fastest growing economies in LatAm but over the last few quarters the country has been adjusting to the collapse in oil prices, the depreciating currency and rising inflation. But the slowdown, especially on the domestic side of the economy, has been less dramatic than expected, so far. Our main scenario is that the adjustment process to challenging external conditions will continue over the coming quarters.
LatAm economies are being battered by high inflation triggered by currency sell-offs and El Niño supply shocks, so rates have had to rise despite the challenging global environment. Peru's central bank, the BCRP, was forced to increase interest rates by 25bp to 4.25% last Thursday, the fourth hike in six months, as inflation is far above the central bank's 1-to-3% target range.
Colombia is more vulnerable to falling oil prices than most other LatAm economies. That's why the COP has dropped by 20% since June, outpaced only by the rouble, which has problems beyond falling oil prices.
• U.S.- Will the FOMC specify its rate guidance today? • EUROZONE - The EZ economy is close to the ceiling for its post-virus rebound • U.K.- The slowdown in GDP growth is set to continue • ASIA - Stimulus will propel China's economy well into 2021 • LATAM - Brazil's rebound continues, but it will soon fade
• U.S. - Cutting rates by 50bp would be risky for the Fed • EUROZONE - Further ECB easing all but confirmed • U.K. - A pause at the BOE means more hikes in 2020 • LATAM - A pick-up in external demand will soon support economies in LatAm • * Our Asia economics team is on annual leave, publication will resume July 30.
The latest developments on the coronavirus outbreak are not encouraging; for LatAm markets and economies.
• U.S. - The second Covid-19 wave is still biting, but the data are improving • EUROZONE - The stimulus money is still flowing in the EZ • U.K. - Hopes of a V-shaped rebound are evaporating • ASIA - China rebounded in Q2, but less so than the consensus expects • LATAM - Still-low inflation in Brazil; Mexico's manufacturing malaise persists
The Fed's insistence this week that U.S. rates will rise only twice more this year helped to ease pressures on LatAm markets this week, particularly FX. The way is now clear for some LatAm central banks to cut interest rates rapidly over the coming months, even before U.S. fiscal and trade policy becomes clear. We expect the next Fed rate hike to come in June, as the labor market continues to tighten. If we're right, the free-risk window for LatAm rate cuts is relatively short.
Colombia is one of the fastest growing economy in LatAm but over the last few quarters the collapse in oil prices, the depreciating currency--fearing higher U.S. interest rates--and rising inflation, have depressed confidence and dragged down economic activity.
• U.S. - Interim trade deal isn't enough to turn the economy around • EUROZONE - The Eurozone, and the euro, as an outperformer? • U.K. - Only a slim hope a last minute Brexit deal making it through parliament • ASIA - China's trade data are bad, but not that bad • LATAM - A strong Brazilian consumer, but misery in Mexican manufacturing
Colombia and Peru have been among the top performers in LatAm currency markets in recent weeks, both rising above 4% against the dollar. Higher commodity prices seem to be driving the rally as domestic factors haven't changed dramatically.
• U.S. - The Fed will cut, but watch the new forecasts • EUROZONE - The ECB doubles down; buckle up! • U.K. - The MPC will not be swayed by easing bias elsewhere • ASIA - China's economy is still not responding to PBoC easing • LATAM - A solid start to Q3 for Brazilian retail sales
• U.S. - Collapsing confidence and mass job losses continue, but not forever. • U.K. - The lockdown is starting to work, but the next steps aren't clear. • ASIA - Positive signs as Chinese money supply and loan growth jump. • LATAM - The real hit from the virus is yet to come.
• U.S. - The U.S. economics team is on vacation • EUROZONE - Poor EZ macro-data, but that's absolutely fine for markets • U.K. - The initial rebound in GDP is set to slow sharply through Q3 • ASIA - Japan's Q3 recovery already looks disappointingly weak • LATAM - The Latam economics team is on vacation.
• U.S. - The U.S. is on annual leave; publication resumes next week • EUROZONE - EZ 2020 growth forecasts are about to come down • U.K. - A new chancellor signals looser fiscal policy • ASIA - Japan's economy slumps in Q4; what next? • LATAM - The COPOM has closed the door on further easing; we're sceptical
Colombia was the fastest growing economy in LatAm last year but it faces major challenges. The collapse of oil prices--which account for about half of exports--the COP depreciation, rising inflation and Fed's impending monetary policy normalization, are dragging down economic activity and damaging confidence.
• U.S. - Are stocks priced for a 10% slump in Q2 GDP? We don't think so • EUROZONE - Europe is going fiscal, but what does it mean in practice? • U.K. - Bolder action is needed to avoid a prolonged recession • ASIA - The Q1 GDP data in China will be unprecedentedly grim • LATAM - Copom is done easing, for now
• U.S. - The FOMC puts the Fed funds rate on ice • EUROZONE - What does the Fed's new rate policy mean for the ECB and EZ assets? • U.K. - More QE, but no negative rates, this week • ASIA - Solid Chinese M1 data suggest the PBoC will hold back on rate cuts • LATAM - Banxico to cut rates further, despite higher inflation
• U.S. - The trade deal will lift business confidence, but only modestly • EUROZONE - A soft Q4 for the PMIs, but we think the bottom is in • U.K. - GDP growth will recover in Q1, before Brexit risks return • ASIA - Now the hard part begins in the U.S.-China trade talks • LATAM - Will President Fernández Solve the Debt Crisis in Argentina?
Donald Trump's inauguration on Friday might mark the beginning of a new era for both the U.S. and the global economy. For commodity-producing Latam countries, such as Chile, Peru and Colombia, attention will shift to Trump's proposed tax reforms, pro-business agenda and planning infrastructure spending. Mexico, on the other hand, will be grappling with Mr. Trump's trade and immigration policies.
Colombia has been one of LatAm's outperformers this year.
Banxico is one of the few central banks in LatAm to have hiked rates in 2016, and we expect it to remain relatively hawkish in the face of external risks.
• U.S. - Downside risks loom for growth in Q3 • EUROZONE - Solid M1 data points to a strengthening EZ recovery • U.K. - No major breakout in sight for Cable • ASIA - India is reopening, but risks remain high • LATAM - Mexico's economy is on the ropes; further rate cuts are coming
• U.S. - The U.S. stock market is following the money • EUROZONE - The ECB gets ahead of the curve with PEPP boost • U.K. - The BOE to remain more timid on QE than its peers? • ASIA - Don't cheer the consensus beating Q1 GDP print in India • LATAM - More pain in Brazilian manufacturing, but the worst is over
• U.S. - November payrolls were wild, are they real? • EUROZONE - The EZ consumer stood tall in Q3, and should remain strong in Q4 • U.K. - The Tories are not home and dry yet, despite a solid poll lead • ASIA - New fiscal stimulus in Japan is not Abenomics 2.0 • LATAM - The Brazilian economy is recovering, but external risks are still a threat
• U.S. - The slump in oil prices will be a net drag on the economy in the near term • EUROZONE - We try to make sense of a wild week in EZ and global markets • U.K. - The BOE will respond more timidly than its peers to Covid-19 • ASIA - The Fed has given Asian central banks room to cut, but they won't go overboard • LATAM - The collapse in oil prices increases the pressure on LatAm
Mexico is the only major LatAm economy not struggling with inflation. The headline April CPI fell 0.3% month-to-month, with the year-over-year rate unchanged at 3.1%, in the middle o f Banxico's 2-to-4% target. Inflationary pressures have been broadly absent since the beginning of the year, with the annual core CPI rate slowing to 2.3% in April from 2.5% in March.
• U.S. - Strong economic data could still kill a July Fed rate cut • EUROZONE - The German economy hit a brick wall in Q2 • U.K. - Markets are overestimating the probability of a BOE rate cut • ASIA - The Tankan underscores Japan's fragile economy • LATAM - Manufacturing in Brazil is showing tentative signs of stabilisation
With the Mexican Elections on July 1st, our Chief Latam Economist Andres Abadia has received many questions about the possible outcomes and how this will affect the Mexican economy going forward.
• U.S. - Follow the polling numbers for clues to Mr. Trump's impeachment fate. • EUROZONE - More bullish money supply data in the EZ. • U.K. - Continued momentum in GDP growth will keep the MPC from easing. • ASIA - The "repo crisis" is not just about the U.S; think central bank divergence. • LATAM - Banxico will ease further; their dovish tone is set to persist.
China and commodities still hurting Latam....But Brazil has severe domestic woes
Mexico's structural reforms, robust fundamentals, and its close ties to the U.S. should have conferred a degree of protection from the turmoil in EMs over the past year. But its markets have been hit as hard as other LatAm countries by the sell-off in global markets in recent weeks. The MXN fell about 5% against the USD in January alone, and has dropped by 20% over the last year.
Colombia was likely the fastest growing economy in LatAm in 2015, but it is set to slow this year as monetary and fiscal policy are tightened, and commodity prices remain under pressure during the first half of the year, at least. Economic activity was surprisingly resilient during 2015, especially during the second half, despite the COP's sell-off, high inflation, and subdued consumer confidence.
Mexico's inflation remains the envy of LatAm, having consistently outperformed the rest of the region this year. Headline inflation slowed marginally to 2.5% in October, a record low and below the middle of Banxico's target, 2-to-4%, for the sixth straight month. The annual core rate increased marginally to 2.5% in October from 2.4% in September, but it remains below the target and its underlying trend is inching up only at a very slow pace. We expect it to remain subdued, closing the year around 2.7% year-over-year. Next year it will gradually increase, but will stay below 3.5% during the first half of 2016, given the lack of demand pressures and the ample output gap.
Data released in recent days have confirmed that private spending is on the mend in the biggest LatAm economies.
LatAm currencies have suffered in recent weeks. Each country has its own story, so the currency hit has been uneven, but all LatAm economies share one factor: Fear of the start of a Fed tightening cycle.
• U.S. - The April NFP report was terrible; reality is worse • EUROZONE - How to spy to a rebound in the EZ economy • U.K. - The BOE will boost its QE program in due course • ASIA - China's 2020 budget deficit is set to soar • LATAM - Brazil is suffering from the government's Covid-19 mismanagement
• U.S. - Hope for the economy if Mr. Trump strikes a quick deal with China • EUROZONE - Bad news; maybe Germany wasn't in recession after all in Q2/Q3 • U.K. - The MPC's dovish bias won't survive into next year • ASIA - No sign of life in Chinese M1 data; we're downgrading our 2020 forecast • LATAM - Inflation data still support dovish monetary policies in Brazil and Mexico
• U.S. - Mr. Trump blinks, but some Chinese consumer goods will face tariffs • EUROZONE - Mr. Trump's recent tariff threats adds to the ECB's dovish convictions • U.K. - Low risk of a recession, despite Q2 fall in GDP • ASIA - China's economy isn't responding to easier monetary policy • LATAM - Our LatAm service is on holiday. Publication will resume next week
Mexico has been one of LatAm's highlights in terms of financial markets and currency performance in recent months.
In yesterday's report we discussed the recent performance of current inflation and inflation expectations in the biggest economies in LatAm, highlighting that risks are tilted to the upside, given the recent FX sell-off and rising political and external risks.
• U.S. - The trade war is starting to hurt; payroll growth will fall further • EUROZONE - The EZ economy is carrying weak manufacturing...for now • U.K. - Can the Conservatives hold on their lead in the polls? • ASIA - More stimulus is coming in China • LATAM - Low inflation is still allowing LatAm central banks to ease
• U.S. - Robust July payrolls, but the data will be worse in August and September • EUROZONE - What can investor sentiment tell us about the economy? • U.K. - The data will force the MPC to pivot towards more QE in Q4 • ASIA - The Asian economics team is on vacation • LATAM - Brazilian rates are on hold, for a long time
• U.S. - January's payrolls overstate the trend in employment growth • EUROZONE - Is the ECB meeting now live? • U.K. - The link between prices and wages has been cut • ASIA - The coronavirus could deliver a $100B hit to China's economy in Q1 • LATAM - Is the COPOM's easing cycle really over?
Peru's central bank, the BCRP, admitted defeat again in the face of the inflationary effects of the PEN's depreciation and El Niño, increasing interest rates by 25bp to 3.75% last Thursday, following its 25bp increase in September. Peru is the third LatAm economy in the last few months to raise rates in response to currency weakness, despite sluggish economic growth. The key problem for Peru is that inflation has been trending higher since early 2013 and has remained stubbornly high, above 2.8% all this year. "Temporary" factors just keep on coming.
• U.S. - Is capex falling as hard as the surveys are implying? • EUROZONE - The end of an era at the ECB; now attention turns to Ms. Lagarde • U.K. - An absolute majority for the Conservatives is not certain • ASIA - Chinese Q3 GDP data were worse than implied by the headlines • LATAM - Mexico hit a brick wall in Q3, but Q4 should be a bit better
Inflation and growth paths remain diverse across LatAm, but in the Andes, the broad picture is one of modest inflationary pressures and gradual economic recovery.
While we were out, the economic news in LatAm was mostly positive. The main upside surprise came from Mexico, with the IGAE activity index--a monthly proxy for GDP--rising 2.9% year-over-year in August, up from 1.2% in July, and an average of 2.4% in Q2. A modest rebound was anticipated, but the headline was much better than we and the markets expected.
LatAm assets and currencies enjoyed a good start to the week, following the agreement between the U.S. and China to pause the trade war.
• U.S. - Business sentiment has bottomed, the hard data haven't • EUROZONE - Trust M1 amid mixed messages from economic data in the EZ • U.K. - Labour is chipping away at the Tories' lead, but not fast enough • ASIA - We don't trust the upturn in China's Caixin manufacturing PMI • LATAM - Uncertainty falls over LatAm's major economies, again
• U.S. - The strength of the recovery is growing • EUROZONE - A full recovery will take time, but a turning point is looming • U.K. - GDP in the U.K. won't make a full recovery in H2 • ASIA - The V-shaped rebouned in Chinese manufacturing is at an end • LATAM - Further rate cuts on the way in Mexico
The data in LatAm have been all over the map in recent weeks. Brazil's cyclical stabilization continues, while Mexican numbers confirm that the economy has come under pressure in recent months.
• U.S. - The Fed is on hold awaiting further developments • EUROZONE - The ECB treads water as it readies its policy review • U.K. - The post-election economic bounce will keep the MPC on hold • ASIA - The coronavirus could prompt a Q1 fall in Chinese GDP • LATAM - The CPI data in Brazil provides further support for a dovish COPOM
• U.S. - Congressional face-off could delay the next relief bill until September • EUROZONE - The Eurozone economics team is on vacation • U.K. - Surging retail sales are a poor guide to overall consumption • ASIA - Korea's grim Q2 likely was the low, but the recovery is fragile • LATAM - The deep recession will suppress inflation in Mexico
LatAm currencies have risen against the USD so far this year, easing the upward pressure on imported good prices and allowing most central banks to cut interest rates. The first direct effects of stronger currencies should be felt by firms which import high-turnover intermediate or final goods.
U.S. -The Fed will let the economy runs hot, if it has to Eurozone - Soft August CPI data sets up further ECB easing in September U.K. - The U.K. economics team is on vacation Asia - Manufacturing in China is peaking, services are catching up LatAm - A full recovery in LatAm is not in the cards this year
• U.S. - The Fed isn't done, but fiscal policy is needed to stop the rot • EUROZONE - Covid-19 is both a supply and demand shock; what will the ECB do? • U.K. - The MPC will respond more timidly to Covid-19 than other major central banks • ASIA - A further downward adjustment to our GDP forecast in China • LATAM - LatAm economies will catch the flu in Q1
• U.S. - Mr. Trump will blink on tariffs, if China doesn't budge • EUROZONE - Real M1 is sending an upbeat signal for the EZ business cycle • U.K. - First a Brexit extension, then new elections • ASIA - Political and economic challenges make a for dangerous cocktail in Hong Kong • LATAM - Brazil avoids a recession, but the recovery is set to remain slow
• U.S. - The Q3 GDP data are under threat • EUROZONE - What does rising PMIs in the EZ mean? • U.K. - The BOE won't shrink its balance sheet anytime soon • ASIA - The Q2 GDP headline in Japan will be nasty • LATAM - A tepid rebound is now underway in Brazilian manufacturing
Recent inflation numbers across LatAm have surprised, in both directions. On the upside, Brazil's IPCA index rose 0.2% month-to-month in September, above the market consensus forecast of 0.1%.
• U.S. - The tide is turning for the worse in the U.S. labour market • EUROZONE - Looking for bright spots in German manufacturing • U.K. - The Tories are ahead in the polls, but the gap will narrow in Q4 • ASIA - What is China's strategy in the trade wars? • LATAM - The recovery in Brazil continues, but it is stalling in Mexico
• U.S.- The recovery in payrolls is petering out • EUROZONE - Soft August PMIs put the EZ recovery on notice • U.K.- GDP growth is set to slow sharply as support measures are pulled • ASIA - Reopening in India won't save the economy in the near term • LATAM -Ignore depressed Q2 GDP data in Brazil, Q3 will look better
• U.S. - March payrolls were poor, they'll be terrifying in April • EUROZONE - Grim EZ PMI data in March • U.K. - The U.K. won't do better than the rest of Europe in Q2 • ASIA - A v-shaped recovery in China is not certain • LATAM - The incoming data will soon confirm a deep recession in the region
• U.S. - The outlook for the job market is deteriorating • EUROZONE - Markets are eyeing a bottom in EZ GDP growth • U.K. - The MPC is in wait-and-see mode until after the elections • ASIA - A spike in CPI inflation, but a still-falling PPI, in China • LATAM - Brazil's COPOM is nearly done easing
• U.S. - Flat near-real time growth data don't mean zero Q3 GDP growth • EUROZONE - A revival of Covid-19 and a EURUSD rally; what gives? • U.K. - The MPC is on the fence regarding negative rates • ASIA - The Asian economics team is on vacation • LATAM - The virus has brought Mexico's economy to its knees
• U.S. - Hopeful signs in the coronavirus data • EUROZONE - The near-term outlook darkens, but the trend is on the mend • U.K. - Only a small rise in GDP growth is needed to keep the BOE on hold • ASIA - Will the coronavirus push Japan into a technical recession • LATAM - Services spared the blushes for the Mexican economy in Q4
• U.S. - Can Powell push Congress to act again? • EUROZONE - Has the ECB revived the carry trade in EZ government bonds? • U.K. - What are the options for the MPC this week? • ASIA - Don't be fooled by the relatively solid Chinese manufacturing PMI • LATAM - The LatAm economies are feeling the pain of Covid-19
• EUROZONE - Covid-19 is about to wash over the EZ hard data • U.K. - Low-income households are poorly prepared for a recession • ASIA - China's grim profit data point to further policy easing • LATAM - Brazil and Mexico are still behind the Covid-19 curve
• U.S. - A squeeze on wages will keep a lid on inflation • EUROZONE - EZ consumption is collapsing, but M1 is soaring • U.K. - No negative rates in the U.K., but we expect a boost to the TFSME • ASIA - China's industrial sector is still wobbling • LATAM - The Brazilian economy is in a world of pain
• U.S. - The surge in retail sales is not all that it seems, and it might not last • EUROZONE - The Eurozone economics team is on vacation • U.K. - Not all near-real-time economic indicators are created equal • ASIA - China's Q2 GDP bounce was good, but not that good • LATAM - What would a Biden victory mean for LatAm?
The MXN remains the best performer in LatAm year-to-date, despite some ugly periods of high volatility driven by external and domestic threats.
• U.S. - Political uncertainty is rising in the U.S.; what happens next? • EUROZONE - Foreigners are slowly returning to EZ asset markets • U.K. - Passing the Brexit deal won't give the economy relief • ASIA - China's economy is still stuck; a rate cut is needed • LATAM - New elections in Argentina will see the economy go backwards
The risk of higher US rates put LatAm currencies under pressure during the first half of the week, before the US FOMC meeting on Wednesday. But they recovered some ground yesterday, following the Fed's decision to leave rates on hold.
• U.S. - The trend in core inflation is stable, despite soft December data • EUROZONE - The Q4 jump in core inflation won't shift the ECB's dovish outlook • U.K. - All eyes on the PMI this week; it could determine the January BOE decision • ASIA - China's economy is weaker than the headlines suggest • LATAM - Black Friday boosted retail sales in Brazil, but less than expected
• U.S. - Trump is making it impossible for China to negotiate a trade deal • EUROZONE - EZ PMIs are stabilising, will the economy follow? • U.K. - Our U.K. service is on holiday, publication will resume on September 4 • ASIA - Chinese authorities will ease further, but they have limited space • LATAM - Downside inflation surprises point to rate cuts in Brazil and Mexico
Colombia, the third largest economy in LatAm, has not been immune to the headwinds of the global economy since the financial crisis in 2008, though it remains one of the fastest growing economies in the region. GDP growth slowed sharply to just 1.7% in 2009, but that was still much better than the 1.2% contraction of the region as a whole.
• U.S. - Only three outcomes of the Trump impeachment process • EUROZONE - EZ GDP growth has stabilised; what happens next? • U.K. - The Tories have a strong lead in the polls, but it will narrow in due course • ASIA - Fiscal stimulus in Japan means a return to the bad old days • LATAM - More rate cuts ahead in Mexico
• U.S. - Third quarter growth looks decent, but the details are soft • EUROZONE - EZ bond markets remain primed for ECB easing next month • U.K. - Our U.K. service is on holiday, publication will resume on September 4 • ASIA - The PBoC's new interest rate policy faces supply-side challenges • LATAM - Further rate cuts on the way in LatAm
• U.S. - The boom in multi-family construction is over, for now • EUROZONE - The ECB will lay the ground for a rate cut this week • U.K. - A general election is coming, but not until 2020 • LATAM - A stable currency will allow rate cuts in Mexico in H2 • * Our Asia economics team is on annual leave.
• U.S. - U.S. states will try to emulate Sweden's Covid-19 strategy; will it work? • EUROZONE - Lockdowns are easy, but what are the criteria for re-opening? • U.K. - Our U.K. economics team is on paternity leave • ASIA - China's GDP is set to contract through 2020 as a whole • LATAM - LatAm central banks have cover to ease further
• U.S. - The Fed will blink if markets have more weeks like this • EUROZONE - All we know about Q1 is that the outlook is uncertain • U.K. - Markets are underestimating risk of no deal between the EU and the U.K. • ASIA - Pre Covid-19 credit numbers in China are holding up • LATAM - LatAm is vulnerable to Covid-19, but its economies won't collapse
Federal Reserve Chair Janet Yellen's testimony this week reinforced our view that the first U.S. rate hike will be in June. The transition to higher U.S. rates will require an unpleasant adjustment in asset prices in some LatAm countries.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
• U.S. - The recovery continues, but weak spots are emerging • EUROZONE - We are still not very excited about the EZ TLTROs • U.K. - The MPC will do more QE in Q4 • ASIA - Is a second wave coming to East Asia? • LATAM - Fiscal and monetary policy to the rescue in Latam?
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
• U.S. - We still think core inflation is headed higher next year • EUROZONE - Don't panic over grim September PMIs • U.K. - A pre-Brexit rate cut is still a long way from certain • ASIA - The BOJ is primed for action next month • LATAM - Brazil cuts rates, and more will follow later this year
• U.S. - An increase in testing overstates reopening risks • EUROZONE - Where is the EZ economy right now? • U.K. - GDP is recovering, the poor May surveys notwithstanding • ASIA - China scraps its GDP target, finally • LATAM - The misery continues in Mexico's economy
Mexico's inflation has been LatAm's odd one out over the last few years. In the decade through 2014, Mexico's inflation rate was broadly in sync with those of its regional fellows, as shown in our first chart.
• U.S. - The Fed is on the ball, but Congress is behind the curve • EUROZONE - The recession has arrived; how long will it last? • U.K. - The PMIs are dreadful, but they still likely understate the incoming slowdown • ASIA - Chinese banks are screaming for a rate cut • LATAM - LatAm policymakers are doing what they can to fight the virus
• U.S. - Only three outcomes of the Trump impeachment process • EUROZONE - EZ GDP growth has stabilised; what happens next? • U.K. - The Tories have a strong lead in the polls, but it will narrow in due course • ASIA - Fiscal stimulus in Japan means a return to the bad old days • LATAM - More rate cuts ahead in Mexico
Senior LatAm Economist Andres Abadia on Colombia
Early results project that Andrés Manuel López Obrador--AMLO--will become the new Mexican president with 53.4% of the votes, against Ricardo Anaya's 22.6%, and José Antonio Meade's 15.7%. AMLO has declared victory and thanked his opponents, who recognized his triumph.
Andres Abadia authors our Latin American service. Andres is a native of Colombia and has many years' experience covering the global economy, with a particular focus on Latin America. In 2017, he won the Thomson Reuters Starmine Top Forecaster Award for Latam FX. Andres's research covers Brazil, Mexico, Argentina, Chile, Colombia, Peru and Venezuela, focusing on economic, political and financial developments. The countries of Latin America differ substantially in terms of structure, business cycle and politics, and Andres' researchhighlights the impact of these differences on currencies, interest rates and equity markets. He believes that most LatAm economies are heavily influenced by cyclical forces in the U.S. and China, as well as domestic policy shocks and local politics. He keeps a close eye on both external and domestic developments to forecast their effects on LatAm economies, monetary policy, and financial markets. Before starting to work at Pantheon Macroeconomics in 2013, Dr. Abadia was the Head of Research for Arcalia/Bancaja (now Bankia) in Madrid, and formerly Chief Economist for the same institution. Previously, he worked at Ahorro Coporacion Financiera, as an Economist. Andres earned a PhD in Applied Economics, and a Masters Degree in Economics and International Business Administration from Universidad Autónoma de Madrid, and a BSc in Economics from the Universidad Externado de Colombia.
Senior International Economist Andres Abadia on Latam currency risks.
What do the protests mean for Chile's economy?
Is Covid-19 the main factor behind Mexico's poor economic performance?
pantheon macroeconomics, pantheon, macroeconomic, macroeconomics, independent analysis, independent macroeconomic research, independent, analysis, research, economic intelligence, economy, economic, economics, economists, , Ian Shepherdson, financial market, macro research, independent macro research