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Latin American dollar bonds have performed relatively well since fears related to the coronavirus started to weigh on the region’s financial markets. But if commodity prices and currencies in the region remain weak, dollar bond spreads are likely to widen …
11th February 2020
Grim end to a weak year Mexico’s industrial sectors weakened again in December, capping a poor year and creating a weak starting point for 2020. The available surveys suggest that conditions remained difficult more recently. Figures released today showed …
Bad week for Argentine policymakers Policymakers in Argentina faced two setbacks this week, which have weakened their hand in debt restructuring talks with creditors. First, the province of Buenos Aires (PBA) made a $250mn capital payment on Wednesday, …
7th February 2020
Inflation up in Mexico, down in Brazil The rise in Mexican inflation from 2.8% y/y in December to 3.2% y/y in January supports our view that, while the central bank will cut interest rates further, the easing cycle won’t go as far as markets are pricing …
The Brazilian government’s plans to enshrine full central bank independence in law would help to both keep longer-term inflation expectations low and bring down real interest rates. This adds to the reasons to think that local currency bond yields will …
6th February 2020
The statement accompanying the Brazilian central bank’s meeting last night gave a clear steer that the easing cycle is now over. With growth likely to stay weak and inflation low, we expect that the Selic rate will be left unchanged for much longer than …
Industry stumbling in Q4 The larger-than-expected 0.7% m/m fall in Brazilian industrial production in December provides further evidence that the economic recovery was stumbling at the end of last year. This reinforces our view that Copom will opt for a …
4th February 2020
The province of Buenos Aires could feasibly default on a $250mn payment on Wednesday. In this Update , we answer three key questions about the current situation, the possible outcomes for Argentina’s largest province, and the implications for the …
3rd February 2020
Brazil: BCB governor opens door to another cut Dovish comments from Brazil’s central bank governor and the continuing shift in market expectations have prompted us to pencil in a 25bp interest rate cut next Wednesday. At the last meeting in December, …
31st January 2020
The decline in energy and metals prices caused by concerns about the coronavirus took a heavy toll on the region’s financial markets in the last few weeks. The Brazilian and Chilean currencies have been the worst performers in the emerging world this …
30th January 2020
Mexico dodged another technical recession in Q4, we think that the weakness seen in the later months of last year will persist into 2020, causing growth to fall far below consensus expectations. Provisional figures released today showed that Mexico’s …
We expect that Chile’s central bank will cut interest rates later this year, and that this will push local currency bond yields down over the next 12 months. But with the demands of protestors likely to result in looser fiscal policy and a larger rise in …
29th January 2020
More clues on Argentina’s restructuring There were three key signs this week that the Argentine government’s deadline of March 31 st for a sovereign debt restructuring is unlikely to be met. First, a debt swap on over $1bn worth of peso-denominated …
24th January 2020
Inflation ticking up The above-target Brazilian inflation reading for the middle of January reduces the chance of an interest rate cut next month. Mexican inflation also rose, supporting our expectation of a short easing cycle. Brazil’s mid-month …
23rd January 2020
Overview – Growth in most Latin American economies should strengthen in 2020, but we expect that these recoveries will be slow and fragile. Indeed, the region is likely to be the worst performing part of the emerging world again this year. Inflation will …
21st January 2020
The gloss coming off Brazil The latest Brazilian activity data have taken some of the shine off the economic recovery. Industrial production figures released last week showed that output fell in November, and other data published in the last few days also …
17th January 2020
The prevailing view that this will be the year when Brazil’s recovery finally shifts up a gear looks overly optimistic. We expect that GDP growth will come in at just 1.5% over 2020, which leaves us close to the bottom of the consensus range. ‘This year …
14th January 2020
Chilean peso weakens, will gain later this year While most EM currencies tumbled this week following the assassination of Iranian General Qassem Soleimani, the Chilean peso fell furthest. Having strengthened from a trough of 837/$ to 750/$ over the course …
10th January 2020
Brazil’s inflation jump takes further easing off the table Strong Brazilian inflation – which jumped to 4.3% y/y last month – and signs that the economy is on a firmer footing, suggest that the further interest rate cuts some still expect in early 2020 …
Inflation eases, industrial production slips Mexican inflation eased again in December, supporting our view that policymakers will continue to cut rates this year. Elsewhere, the larger-than-expected 1.2% m/m fall in Brazilian industrial production in …
9th January 2020
Spike in inflation will be temporary, rate cuts likely by end year The rise in Chilean inflation to 3.0% y/y in December is likely to be followed by a further increase to around 4.0% y/y over the first half of this year. That said, this period of …
8th January 2020
Argentine policymakers resorting to old tricks There is a sense of déjà vu about recent Argentine policymaking. Deficit monetisation is back, despite Economy Minister Martín Guzmán’s warning last month that it is a destabilising tool. The central bank has …
3rd January 2020
Inflation soft but limited rate cuts ahead The fall in Mexican inflation to 2.6% y/y in the first two weeks of December, from 3.0% in the full month of November, will pave the way for Banxico to continue its easing cycle in the coming months. That said, …
23rd December 2019
Argentina: Maturity extensions not bold enough The government stated today that it will postpone around $9bn of upcoming payments on Treasury bills (known as Letes) until August 2020. This is not hugely surprising. Most upcoming payments were due on …
20th December 2019
Inflation jump takes further easing off the table The sharp rise in Brazilian inflation, to 3.9% y/y in the first half of December, from 2.7% a month earlier rules out another interest rate cut at the next central bank meeting in February. The mid-month …
The last round of economic data released in 2019 pointed to a mixed performance in Latin America. Growth seems to have remained robust in Colombia in Q4 – and to have strengthened in Brazil – but activity faltered elsewhere. For the region as a whole, …
19th December 2019
To mark the new year, our various teams have published a series of key calls notes setting out what to watch for in 2020. This Update wraps up some of our key views for Latin America. First, growth is likely to disappoint in 2020 . Economies across the …
18th December 2019
Protests in Chile will probably result in a shift towards permanently looser fiscal policy. But it would take a long time for the debt ratio to become a concern, so any corresponding rise in bond yields over the next five years is likely to be fairly …
16th December 2019
Argentina: Still more questions than answers Reassuring comments from newly inaugurated President Fernández and his economy minister Martín Guzmán helped to drive a small rise in Argentine bond prices this week. Both said that the government seeks a …
13th December 2019
Manufacturing headwinds strengthen The fall in Mexican manufacturing output in October was largely due to the GM strike, but even if this were excluded the latest figures show weakness across key industrial sectors. This strengthens our belief that the …
12th December 2019
The statement accompanying the Brazilian central bank’s meeting last night did leave the door open for one more interest rate cut, but on balance we think the easing cycle is at an end. By the same token, the interest rate hikes that are now being priced …
Alberto Fernández’s government, which takes office today, will soon begin to implement its economic agenda and outline its proposals to resolve the debt crisis. This Update outlines four key things to watch. The first is an extension of capital controls . …
10th December 2019
Inflation stable, opening way for 25bp cut next week Mexican inflation remained at a three-year low of 3.0% y/y in November, which strengthens our view that policymakers will cut their key rate from 7.50% to 7.25% next week. Full-month figures released …
9th December 2019
The big reveal for Argentina’s Economy Minister Recent reports suggest that Alberto Fernández, who takes office on Tuesday, has selected Martín Guzmán as his economy minister. That’s unlikely to inspire much investor confidence; IMF-backed policy …
6th December 2019
Inflation rises, but 50bp rate cut still on the cards The slightly larger-than-expected rise in Brazilian inflation in November, to 3.3% y/y, was driven partly by food inflation, but also by a rise in regulated prices. The data are unlikely to prevent …
Inflation set for a temporary spike, rate cuts still to come next year The rise in Chilean inflation to 2.7% y/y in November is likely to be followed by a further increase to around 4.0% y/y early next year. That said, this increase will be temporary. As …
The statement accompanying the Chilean central bank’s decision to hold interest rates at 1.75% yesterday signalled that policy rates will be left unchanged over Q1, but we still think it’s most likely that rates will be lowered over the next 12 months. We …
5th December 2019
A good start to Q4 The 0.8% m/m rise in Brazilian industrial production in October provides early evidence that GDP growth in Q4 is shaping up to be a bit stronger than Q3’s 0.6% q/q. The industrial production figure was a touch weaker the Bloomberg …
4th December 2019
While there is likely to be more turbulence ahead for the Chilean peso, the big falls are probably behind us. Indeed, with the central bank intervening and copper prices likely to rise, we think it’s more likely than not that the peso will strengthen by …
A slow recovery The slightly better-than-expected Brazilian Q3 GDP growth figure of 0.6% q/q adds to the evidence that the recovery is gaining some momentum. But growth remains soft, and the central bank is still almost certain to lower the Selic rate by …
3rd December 2019
We estimate that regional GDP growth picked up to about 0.5% q/q in Q3, which would be the fastest pace in 18 months. But that probably marks the peak in the recovery. Argentina and Chile are set to contract in Q4, Mexico’s economy is showing few signs of …
29th November 2019
Brazil: Real’s fall doesn’t rule out a final cut The Brazilian real continued to tumble this week, hitting a record low of 4.27/$ and prompting the central bank to sell FX. The currency has regained ground over the past 48 hours, but is still down by 5% …
Comments by Venezuelan President Nicolás Maduro suggest that the government considers dollarisation as an option to tackle hyperinflation. If implemented, this would probably bring inflation down sharply. But we doubt that this would be sustained so long …
28th November 2019
Revised GDP figures have, again, shown Mexico as one of the worst-performing large EMs. But a closer look at the data underlines the huge variation within the country, which includes both pockets of outperformance as well as sectors locked in structural …
27th November 2019
Ecuador: Dollar bonds likely to rebound Legislators’ rejection of President Lenín Moreno’s latest fiscal reform bill caused a sharp sell-off in Ecuadorian bonds this week. But we think that investors have gone too far. The spread of government dollar …
22nd November 2019
Slight pickup, but policymakers will still cut in December Inflation ticked up in the first half of November in both Brazil and Mexico, but we doubt that this will be enough to dissuade policymakers from cutting their key interest rates in December. We …
President-elect Alberto Fernández’s plan to resolve Argentina’s debt crisis by growing the economy is not a realistic option. We think that a large debt write-down within a few years is inevitable, suggesting that there is little scope for a large or …
Recovery to continue as policy is loosened The pick-up in Peruvian GDP growth from 1.2% y/y in Q2 to 3.0% y/y in Q3 probably marks the beginning of a sustained economic recovery. While GDP growth over this year as a whole is likely to be just 2.5%, we …
21st November 2019
While GDP growth picked up in Q3, activity data for September indicates that the economy had already slowed significantly prior to the protests beginning. GDP is likely to contract in Q4. That said, events of recent days have raised hopes of the protests …
18th November 2019
Chilean markets recover on government offer The Chilean peso rallied against the US dollar today after lawmakers accepted protestors’ demand that a constituent assembly will play a role in writing a new constitution next year, which may help to …
15th November 2019
