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The monetary transmission mechanism in Brazil seems to have weakened recently, which is likely to prevent the sharp fall in market interest rates seen since 2017 from feeding through to a significant pick-up in credit growth. The recovery in bank lending …
10th October 2019
Inflation surprise puts another 50bp cut on the table The fall in Brazilian inflation to a weaker-than-expected 2.9% y/y last month opens the door to another 50bp cut in the Selic rate when Copom meets at the end of this month. The outturn for September …
9th October 2019
Weak inflation adds to case for November rate cut Mexican inflation eased to a three-year low of 3.0% y/y in September, which strengthens our view that policymakers will cut their key rate from 7.75% to 7.25% by the end of the year. Full-month figures …
Peru’s constitutional crisis easing, for now The political turmoil that erupted in Peru earlier this week now seems to be fizzling out. President Martín Vizcarra swore in a new cabinet on Thursday and the electoral authority has announced the date of new …
4th October 2019
Worsening relations between the Brazilian presidency and legislature threaten to delay the much-vaunted pension bill and will keep markets on tenterhooks in the coming weeks. It still looks like the reform will be approved, but the latest events suggest …
3rd October 2019
Chile’s economic slowdown this year was mostly due to weaker private consumption, caused by a fall in consumer confidence. But with the labour market strengthening and copper prices likely to rise next year, we expect that consumer spending growth will …
The dissolution of congress by President Martín Vizcarra and his heated stand-off with the opposition will likely cause a sell-off in markets and further political gridlock. But as things stand, we doubt that this will prevent Peruvian GDP growth from …
1st October 2019
Further signs of recovery The better-than-expected 0.8% m/m rise in Brazilian industrial production was driven by rapid growth in the mining sector, which won’t be sustained. Even so, the figures add to the evidence that the economic recovery gathered …
The central banks of Brazil and Mexico loosened policy this month, and we expect that they will continue to cut rates in Q4. Inflation in both countries is below target, and both economies are struggling and in need of policy support. In Mexico, dovish …
30th September 2019
Brazilian households on the rise… Figures published this week support our view that Brazilian households should help to drive a modest economic recovery over the coming quarters. The first positive surprise in the incoming data came from the payrolls …
27th September 2019
Mexican policymakers cut their policy rate from 8.00% to 7.75% yesterday, and we think that they will continue to loosen policy over the coming quarters. We now expect a 25bp cut in both of the remaining meetings this year, taking the rate to 7.25% rather …
Inflation below target, and set to remain low The Brazilian mid-month inflation figure of 3.2% y/y in September leaves the door open to further monetary easing over the coming months. Beyond that, the large output is likely to keep inflation below target …
24th September 2019
Softer inflation adds to argument for another cut Mexican inflation eased very slightly over the first half of September, supporting our view that policymakers at the central bank will cut their key rate from 8.00% to 7.75% on Thursday. Figures released …
President Nicolas Maduro’s attempts to control inflation have had some effect, but without more severe measures we think that price pressures will probably remain extremely high over the coming months. After peaking at 350,000% y/y in January, Venezuelan …
23rd September 2019
Argentina’s Q2 GDP figures largely moot Data released this week showed that Argentina’s recession eased in Q2, but more timely figures point to a sharp downturn in Q3 and Q4. The headline from Thursday’s Q2 GDP release – that the pace of contraction eased …
20th September 2019
The Brazilian central bank’s decision to cut the Selic rate by 50bp last night was accompanied by a statement clearly signalling that policymakers intend to ease monetary policy further. As a result, we now expect another 25bp cut in October. The 50bp cut …
19th September 2019
The Brazilian government’s tax and budget reform plans would, if implemented, significantly improve the country’s longer-term fiscal health and productivity growth. But the proposals will face more opposition than the government’s recent efforts to …
18th September 2019
Mexico waking up to Pemex’s problems The $5bn cash injection for Pemex announced by Mexico this week adds to signs that policymakers may finally be starting to acknowledge the gravity of the problems at the state energy company. (For more on these issues, …
13th September 2019
Latin American currencies are likely to weaken further in the coming months alongside most EM currencies. But while we expect the Chilean peso and Peruvian sol to end next year stronger than their current level, the Brazilian real and Colombian peso will …
11th September 2019
Industry remains in the doldrums The 0.4% m/m fall in Mexican industrial production in July adds to our view that economic activity remains subdued and Banxico will cut interest rates later this month. The decline in industrial production in July was …
The 2020 budget presented by Mexico’s finance ministry at the weekend suggests that there will be a tilt towards providing modest stimulus to the struggling economy. But the big picture is that the government is continuing to pursue fiscal discipline, …
9th September 2019
Falling inflation seals the deal for September rate cut The sharp drop in Mexican inflation from 3.8% y/y in July to 3.2% y/y in August is likely to be followed by further falls over the rest of the year. That should pave the way for more monetary easing …
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
