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Argentina: Capital controls raise painful memories The introduction of capital controls last weekend seems to have stabilised Argentina’s official exchange market. After losing 24% of its value against the US dollar over the preceding three weeks, the …
6th September 2019
Low inflation opens door for further rate cuts The small rise in Brazilian inflation (to 3.4%y/y in August) is unlikely to trouble policymakers at the central bank. With the headline rate below target and the economy struggling, we expect a 50bp cut in …
Yesterday’s MPC statement suggested that Chilean policymakers will follow yesterday’s 50bp cut with more easing. The latest growth and inflation data have been weak, and there is a window for further rate reductions. We have now pencilled in an additional …
4th September 2019
We think that low oil prices and a continued slump in the property sector will cause investment growth in Colombia to slow in the coming quarters. This is one reason why our growth forecasts sit at the bottom of the consensus range for this year and next …
3rd September 2019
A bad start to Q3 The surprising 0.3% m/m drop in Brazilian industrial production in July probably seals the deal on a 50bp interest rate cut at the next central bank meeting on 18 th September. July’s outturn was not as bad as the 0.7% m/m contraction …
The capital controls introduced by Argentine President Mauricio Macri over the weekend may, in the short term, help to stem capital flight and slow the pace of FX reserve depletion. But their imposition might make it easier for a future left-wing …
2nd September 2019
The collapse in Argentine assets this month and the subsequent news that the government will seek to reprofile its debts puts the country on the brink of its fifth default in thirty years. The economy is likely to fall back into recession, although the …
30th August 2019
No joined-up thinking raises risk of more surprises The Argentine government’s debt reprofiling plan has been greeted with some scepticism, and we think markets will remain under pressure unless investors see evidence of joined-up thinking between Alberto …
Investment supported Q2 recovery The surprisingly strong 0.4% q/q rise in Brazilian GDP in Q2 confirms that the extremely weak activity recorded earlier this year was a blip rather than the start of a renewed downturn. But the economy is still soft and …
29th August 2019
The Argentine finance ministry’s decision to extend the maturities of some of its short-term local-law debt, and enter talks with external bondholders, is tantamount to default. The government and bondholders stand a good chance of agreeing to some …
The Argentine central bank’s large intervention in the FX market in recent days hasn’t been enough to stop the peso from weakening further against the dollar, and we think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso. …
28th August 2019
Brazil’s sluggish recovery Data due next week are likely to show that Brazil’s economy stagnated in the second quarter and, while there are signs that activity strengthened at the start of Q3, the economy remained extremely weak. The Q2 GDP figure (due on …
23rd August 2019
Investors appear to be coming round to our view that an Argentine sovereign debt default is now more likely than not. This Update provides clients with a primer on the composition of federal government debt, and explains what this might mean for any debt …
Soft inflation increases likelihood of 50bp cut The weaker-than-expected Brazilian inflation figure, of 3.2% y/y, raises the likelihood that Copom will cut the Selic rate by 50bp (rather than 25bp) when it next meets on 18 th September. The mid-month …
22nd August 2019
Chunky fall in inflation to give Banxico room for another rate cut The larger-than-expected fall in Mexican inflation in the first half of this month, to 3.3% y/y, strengthens the case for Banxico to follow up this month’s 25bp interest rate cut with …
The recent political turmoil in Peru has stoked fears about governability issues, and congressional gridlock is likely to continue in the near term. But in contrast to many other analysts, we doubt that this will prevent GDP growth from accelerating in …
21st August 2019
Recovery to continue as policy is loosened The pick-up in Chilean GDP growth from 1.6% y/y in Q1 to 1.9% y/y in Q2, is likely to mark the beginning of a sustained economic recovery. While GDP growth over this year as a whole is likely to be just 2%, our …
19th August 2019
Argentine debt default becoming inevitable The Argentine peso has stabilised over the past few trading days but the collapse earlier this week has made a sovereign debt default highly likely. At the risk of blowing our own trumpet, recent events have left …
16th August 2019
Growth likely to slow from here Colombian GDP growth remained strong in Q2 at 3.0% y/y, and we’ve revised up our forecast for 2019 from 2.0% to 2.8%. But we still think that the consensus forecasts are too optimistic. The Q2 outturn was stronger than our …
15th August 2019
The rout in Argentine markets is likely to push the economy back into recession. We now expect GDP to contract by 3% over this year as a whole (our previous forecast was -2.0%) and inflation to breach 60% y/y (from 55% y/y now). We also anticipate a …
With Argentine markets continuing to come under pressure, a sovereign debt default is increasingly likely. We think this is most likely to come in response to a request from the IMF, probably before year-end. This would result in smoother debt …
14th August 2019
The rout in Argentine markets yesterday, and increasing likelihood of a lurch to the left in October’s presidential election, has rekindled sovereign default fears. One crunch point could be 15 th September, when the next IMF loan tranche is due to be …
13th August 2019
The rout in Argentine markets today will push up the public debt ratio to over 100% of GDP, and makes a sovereign default even more likely. It’s possible that the IMF requests a debt restructuring before October’s election. The collapse in markets, a …
12th August 2019
The comprehensive victory for Alberto Fernandez in Argentina’s primary election paves the way for the return to left-wing populism that many investors fear. With a renewed focus on sovereign default risks, bonds, equities and the peso will come under …
Argentina elections: your primer on the primaries Argentine markets are likely to take their cue from the outcome of Sunday’s primary election when they open next week, but the vote doesn’t always foreshadow the presidential election outcome. Argentina’s …
9th August 2019
Production rebound to provide strong carryover for Q3 The stronger-than-expected increase in Mexican industrial production in June, of 1.1% m/m, should provide a strong carryover for Q3. But with the economy still very weak, we remain comfortable with our …
The statement accompanying the decision by Peru’s central bank to cut interest rates left the door open for further easing. And with the incoming growth and inflation data still weak, there is a window for further rate reductions. We’ve pencilled in 50bp …
Falling inflation opens door to further rate cuts The decline in inflation in Brazil and Chile in July points to further monetary easing, and we currently expect a 25bp interest rate cut in both countries next month. In Brazil, with pension reform passing …
8th August 2019
Further fall in inflation keeps August rate cut in play The further fall in Mexican inflation in July, to 3.8% y/y, keeps an interest rate cut at next week’s policy meeting on the table. It will be a close call, but on balance we think the central bank …
Large Mexico stimulus raises fiscal risks The large fiscal stimulus unveiled by Mexico’s new finance minister this week will support activity, but it raises medium-term fiscal risks. We always argued that the change of finance minister last month was …
2nd August 2019
Slipping into recession The 0.6% m/m fall in Brazilian industrial production in June adds to the evidence that GDP contracted again in the second quarter. We expect a recovery in the second half of the year, but it will be slow going. June’s outturn was …
1st August 2019
The Brazilian central bank’s larger-than-expected 50bp reduction in the Selic rate last night to 6.00%, and hints of more stimulus, have prompted us to pencil in an additional two 25bp rate cuts this year. We now expect the Selic rate to end this year and …
Mexico (maybe) dodged recession, but rate cut coming next month Preliminary GDP data suggesting that Mexico escaped a technical recession by the skin of its teeth in Q2 don’t change the bigger picture that the economy remains very weak. This supports our …
31st July 2019
Mexico: avoiding a recession…just Mexico’s preliminary Q2 GDP figures due next week are likely to show that the economy stagnated, dodging a technical recession. But whether the growth figure is above zero or not, the key point is that the economy is …
26th July 2019
A number of major central banks in Latin America are on the cusp of joining the global easing cycle but, in contrast to the prevailing view, we don’t think that Colombia will be one of them. We expect a weaker Colombian peso to push inflation up in the …
25th July 2019
The case for interest rate cuts across Latin America has strengthened in the past month, partly because of the dovish shift by the Fed, but also because of soft domestic inflation and growth. Policymakers at central banks in Chile and Mexico struck a …
Further fall in inflation strengthens case for August rate cut The further fall in Mexican inflation in the first half of this month, to 3.8% y/y, makes an interest rate cut at the central bank’s next policy meeting on 15 th August increasingly likely. …
24th July 2019
Inflation falls, rate cuts coming The fall in Brazilian inflation to 3.3% y/y in the middle of July surely seals the deal on a rate cut at the Copom meeting next week. Moreover, with underlying price pressures weak, policymakers are likely to be able to …
23rd July 2019
Mexican government unwilling to fix Pemex The Mexican government’s underwhelming business plan for Pemex, announced this week, reinforces our view that it is not willing to implement the reforms necessary to stabilise oil production. Against that …
19th July 2019
One key point contained in the IMF’s latest quarterly review of Argentina’s bailout programme is that the Fund is now expecting the government to run a primary deficit this year (having expected a balanced budget previously). While this will have little …
16th July 2019
With budget deficits still large in Brazil and Argentina, fiscal policy there will continue to be tightened over the coming years. But small budget deficits in Mexico, Chile and Peru mean that governments there now have scope to loosen the purse strings. …
15th July 2019
Banxico likely to begin cutting rates next month The minutes to the last Mexican central bank meeting, published yesterday, revealed a more dovish shift on the Bank’s Board than we had expected. We now think that an interest rate cut at the next meeting …
12th July 2019
Overview – After a terrible start to the year, we expect economic growth in Latin America to pick up over the next 12-18 months. However, recoveries in most cases will be weak. Indeed, our GDP forecasts for many countries, including the region’s two …
Production collapse strengthens case for August rate cut The much larger-than-expected drop in Mexican industrial production, of 2.1% m/m, reinforces our downbeat view on the economy, and is likely to push the central bank towards cutting interest rates …
The large margin of victory for Brazil’s pension bill in its first vote in the lower house last night is likely to result in a rally in local markets later today, and makes an interest rate cut at the Copom meeting this month a done deal. We have also …
11th July 2019
Inflation back below target opens door to easing The sharp drop in Brazilian inflation to 3.4% in June, which took it below the central bank’s target, suggests that policymakers will soon start to ease monetary policy. Barring any major hiccups with the …
10th July 2019
Brazil’s pension reform bill would, if passed in its current form, reduce vulnerabilities stemming from the dire public finances. But we are sceptical that it would lead to the near-term turnaround in the economy that some seem to expect. The pension …
9th July 2019
Inflation now falling sharply The large drop in Mexican inflation, from 4.3% y/y in May to 3.9% y/y in June, is likely to be followed by another sizeable fall this month. That should see Banxico inch further towards interest rate cuts, with an easing …
Pension reform progressing but hurdles remain Brazil’s much-vaunted pension reform passed an important legislative hurdle this week, although the bill is likely to come up against more substantial resistance in the coming weeks. After various delays and …
5th July 2019
Slipping into recession The fall in Brazilian industrial production in May, of 0.2% m/m, adds to the evidence that the economy fell into a technical recession in Q2. With inflation also easing, an interest rate cut seems likely as soon as the Copom …
2nd July 2019
