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The continued softness of Brazilian inflation last month reinforces Copom’s dovish message delivered in this week’s policy communiqué, and keeps rate hikes off the table for now. Elsewhere, the larger-than-expected fall in Chilean inflation in January …
8th February 2019
The larger-than-expected fall in Mexican inflation last month, to 4.4% y/y, adds to the reasons to think that Banxico will row back on previous hawkish rhetoric when it meets this evening. We expect inflation to fall further, prompting a shift towards …
7th February 2019
Venezuelan dollar bonds have continued to rally this week on hopes of a swift political transition, debt restructuring and economic overhaul, but history suggests that this could prove optimistic. Elsewhere, mining company Vale’s decision to halt …
1st February 2019
Even though Brazilian industrial production rose by a slightly better-than-expected 0.2% m/m in December, the sector was a drag on growth over Q4 as a whole. The services sector seemed to fare a bit better, but there’s a real risk that GDP contracted last …
Venezuela’s sovereign dollar bonds have rallied strongly over the past few weeks as investors appear to be betting on a swift regime change and a smooth debt restructuring, but the markets risk getting ahead of themselves. Some of the latest newsflow …
31st January 2019
The statement accompanying the Chilean central bank’s decision to hike its policy rate by 25bp to 3.00% last night was slightly less hawkish than the previous one, and supports our view for fewer rate hikes than the markets are pricing in. We expect rates …
Preliminary Q4 GDP figures from Mexico were better than expected, but showed a sharp slowdown in growth from Q3. We still expect growth to accelerate this year and our forecast for a pick-up to 2.5% (from 2.0% over 2018 as a whole) is above consensus. … …
30th January 2019
Mexican inflation has been stubbornly above Banxico’s 2-4% target over the past two years, but we think it will fall back within this range by year-end. And with the Fed’s tightening cycle near its peak, we expect Banxico to shift into easing mode later …
29th January 2019
The decision by the US to impose sanctions on Venezuela’s state-owned oil company, PDVSA, will lead to a large loss of export earnings in the next few months. If Maduro can cling on to power during this time (perhaps by securing loans from China and …
Speculation is growing that Ecuador’s president, Lenín Moreno, will seek an IMF deal in the coming months, and history suggests that the recent rally in sovereign dollar bonds has further to run. Venezuela’s dollar bonds have also rallied this week as …
25th January 2019
The larger-than-expected fall in Mexican inflation in the first half of January, combined with the recent rally in the peso, means that we no longer expect a 25bp interest rate hike at next month’s meeting. The next move in interest rates will be down, …
24th January 2019
The decision by the US and other governments to recognise the leader of Venezuela’s opposition Juan Guaido as president seems to have ratcheted up the pressure on the Maduro regime. Regardless of how events play out, history suggests that hyperinflation …
The continued softness of Brazilian inflation up to the middle of January will give the central bank room to hold off raising rates until there is more clarity on the government’s reform plan. For our part, we think it’s most likely that reforms will …
23rd January 2019
Brazilian president Jair Bolsonaro’s headline speech in Davos today suggests that opening up the economy to international trade will be a major priority, something that would boost the economy’s long-term prospects. But the near absence of any mention of …
22nd January 2019
The Argentine peso has given up some of its recent gains against the dollar this week, and we expect further weakness over the coming months. Elsewhere, better-than-expected Brazilian retail sales figures for November, released this week, raised hopes of …
18th January 2019
GDP growth in Latin America should strengthen in the coming quarters, but the pace of the recovery will be weaker than most expect. Fiscal and monetary policy are likely to be tightened and external headwinds are brewing. We think some of the optimism …
17th January 2019
Brazil’s President Jair Bolsonaro seems to be pushing one of his campaign pledges to liberalise trade and, if successful, history suggests that this might plausibly add as much as 0.75%-pts to potential GDP growth. … Brazil: why trade liberalisation would …
16th January 2019
Brazil’s government is reportedly close to agreeing a pension reform bill, but we still think that political realities may end up diluting or stalling welfare reform. Elsewhere, the Mexican government’s decision to temporarily close key gas pipelines to …
11th January 2019
The surprise contraction in Mexican industrial production in November – the second consecutive monthly fall – all but confirms that overall GDP growth slowed sharply in Q4. As things stand, following a 0.8% q/q expansion in Q3, growth is shaping up to be …
The fall in Brazilian inflation to a seven-month low of 3.7% y/y in December, coming alongside the continued strength of the real, means the central bank is likely to strike a more dovish line in the next few months. But there are tentative signs that …
The rise in Mexican inflation, from 4.7% y/y in November to 4.8% y/y in December, means that another 25bp interest rate hike (to 8.50%) at next month’s meeting is still likely. However, this will probably be the last hike in the cycle. … Mexico Consumer …
9th January 2019
The softer-than-expected Brazilian industrial production figure for November of 0.1% m/m underscores the weakness of the economy and supports our view that some of the optimism about growth prospects following Jair Bolsonaro’s election victory is a bit …
8th January 2019
Brazilian markets have performed strongly this week as hopes for business-friendly reforms under President Jair Bolsonaro have continued to build, but we think that the rally may run out of steam before long. Elsewhere, the minutes to the Mexican central …
4th January 2019
News that creditors have started the process for triggering an “acceleration” clause in one of Venezuela’s sovereign dollar bonds suggests that, after a lengthy impasse, the debt crisis is likely to escalate quickly from here. Looking into next year, …
21st December 2018
The statement accompanying the Mexican central bank’s decision to raise interest rates by another 25bp was very hawkish, suggesting that the board is not done tightening yet. As such, we’re still expecting a further 25bp hike in the near term, but we see …
GDP data released last night confirmed that Argentina entered a technical recession in Q3 and, while net trade provided a positive contribution to growth, we don’t think that this can be pinned solely on a weaker peso. More timely data suggest the economy …
19th December 2018
The recent slowdown in Latin American growth appears to have passed its trough. Our regional GDP Tracker suggests that output rose by around 1.3-1.5% y/y at the start of Q4, up from a low point of about 0.8% y/y in July. Growth in the region as a whole is …
18th December 2018
The Mexico City airport bond dispute appears to be at an impasse and, if the wrangle drags on, sovereign bond yields are likely to drift up, and Banxico would be more likely to hike interest rates further. … Three questions on Mexico’s airport bond …
The prudent 2019 budget presented by Mexican President Andrés Manuel López Obrador (Amlo) at the weekend is probably an attempt to try to get investors back onside after a series of policy moves which have spooked markets. It adds to the impression that, …
17th December 2018
Mexico’s 2019 budget that will be presented to Congress on Saturday looks set to (unrealistically) target a primary budget surplus. But, more importantly, if spending is projected to rise by much more than the 7-8% most expect, the peso and bonds would …
14th December 2018
The Brazilian Central Bank’s (BCB’s) statement from last night’s meeting suggests that interest rates will be left unchanged over the next few months at least. We think a tightening cycle will start next year, probably in Q2, as some of the optimism …
13th December 2018
The larger-than-expected contraction in Mexican industrial production in October was driven partly by a collapse in mining output, but other parts of industry also struggled. October’s disappointing data provide early evidence that GDP growth in Q4 is …
12th December 2018
Mexican President Andres Manuel Lopez Obrador’s announcement that he will postpone oil auctions adds to a series of populist moves that have rattled local markets, and we reckon this has resulted in a political risk premium of 40-50bp on sovereign debt. …
7th December 2018
The further decline in Mexican inflation in November is unlikely to cause Banxico to soften its hawkish stance. Another 25bp rate hike, to 8.25%, at this month’s meeting still seems more likely than not. … Mexico Consumer Prices …
The larger-than-expected drop in Brazilian inflation in November, to 4.1% y/y (from 4.6% y/y in October), reinforces our view that Copom won’t rush to tighten policy. We expect the Selic rate to be left unchanged at Wednesday’s meeting, and have pencilled …
Mexican economic growth has weakened after all but one presidential election since 1950, and there have been growing suggestions that the recent change of government could cause growth to weaken next year. But we don’t think this will be the case and are …
6th December 2018
The decision by Andrés Manuel López Obrador (Amlo) to seemingly postpone Mexico’s deep water oil auctions for three years is unlikely to have a major bearing on oil production in the near term. But it is the clearest sign yet that Amlo intends to stop the …
5th December 2018
The statement accompanying the Chilean central bank’s decision to hold its policy rate at 2.75% last night suggested that this was only a brief pause in its tightening cycle. We continue to think that tightening over the next year will be more rapid than …
Brazil’s incoming government has given little detail about its proposed (and much-needed) reforms to the country’s pension system. But stabilising the public debt ratio would require reform at the more ambitious end of the policies under consideration – …
4th December 2018
Weaker-than-expected Brazilian industrial growth in October, of 0.2% m/m, provides early evidence that GDP growth in Q4 is likely to be weaker than Q3’s outturn of 0.8% q/q. … Brazil Industrial Production …
Oil prices are up today, but the recent decline means that inflation will rise more slowly in Latin America over the next few months than we had previously thought. We still expect a majority of central banks to hike rates in the coming months, although …
3rd December 2018
The minutes to Banxico’s latest interest rate meeting send a clear message that the recent policy shift under Andrés Manuel López Obrador’s (Amlo’s) will result in further rate hikes. Elsewhere, commodity prices seem to have re-asserted themselves as key …
30th November 2018
The robust 0.8% q/q expansion in Brazilian GDP in Q3 was flattered by the recovery from disruptions caused by the truck drivers’ strike in May. That said, the improvement in the latest survey data suggest that underlying momentum in the economy has …
Having struck a business-friendly tone after his election, Mexico’s president elect Andrés Manuel López Obrador has more recently begun to unnerve investors. Ahead of his inauguration on Saturday, this Update highlights five things that would suggest his …
29th November 2018
The drop in oil prices this month is clearly bad news for the region’s large net energy exporters, Colombia and Venezuela; a fiscal squeeze in on the cards in the former and the latter’s crisis will get even worse. But for the rest of the region, lower …
28th November 2018
A range of factors, including a fall in soybean prices, expectations of central bank intervention and political risk, appears to best explain the recent drop in the Argentine peso against the dollar. Our base case is that the peso continues to fall, …
27th November 2018
The market reaction to the incoming Mexican government’s public consultation is unlikely to be as bad as the last one, which voted to scrap a flagship airport project. Even so, it provides more evidence that Andrés Manuel López Obrador (Amlo) is shifting …
23rd November 2018
The decline in Mexican inflation in the first half of November, which was in line with expectations, is unlikely to cause Banxico to soften its hawkish stance. Another 25bp interest rate hike (to 8.25%) at next month’s meeting still seems more likely than …
22nd November 2018
Having already hit the IMF’s primary deficit target for this year, Argentine policymakers have made impressive progress on fiscal tightening. But the squeeze so far accounts for only a third of the total effort requested by the IMF over the course of the …
The slowdown in Peruvian GDP growth from 5.4% y/y in Q2 to 2.3% y/y in Q3 is likely to be a blip, and growth should be stronger in Q4. Even so, growth is likely to be weaker than most expect over 2019. … Peru GDP (Q3 …
21st November 2018
