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The rise in Brazilian inflation, to 4.5% y/y in September, has already exceeded the BCB’s newly-published forecasts. And, taken together with comments from policymakers that hint at the start of a tightening cycle, it’s looking most likely that the first …
5th October 2018
The rally in Brazilian markets this week on polls showing a rise in support for right-wing presidential candidate Jair Bolsonaro suggests that the political risk premium being priced in has declined sharply. Given how tight the presidential race is and …
4th October 2018
The timing of the Brazilian central bank’s first interest rate hike is likely to be determined by politics as much as economics. There’s a lot of uncertainty related to the outcome of the Presidential election. But, as things stand, it seems most likely …
3rd October 2018
The surprisingly large 0.3% m/m fall in Brazilian industrial production in August seems to be due to a temporary halt in production at one of the country’s petroleum refineries, which should have unwound last month. Even so, surveys suggest that …
2nd October 2018
The announcement of a trilateral trade deal with the US and Canada removes one major source of uncertainty surrounding Mexico’s outlook. The focus will increasingly shift onto the policies of president-elect Andrés Manuel López Obrador, and the evidence …
1st October 2018
The market reaction to Argentina’s revamped IMF deal suggests that, while investors believe that sovereign default risks over the next year or so have receded, they remain elevated further out. Meanwhile, the latest budget data from Brazil underline the …
28th September 2018
The slowdown in Brazilian retail sales growth in the last few months looks alarming, but there are reasons to think that any weakness in overall consumer spending will be more modest. … How bad is Brazil’s consumer …
27th September 2018
The larger-than-expected increase in the size of Argentina’s revamped IMF credit line reduces debt rollover risks and is likely to lead to a rally in local markets when they open later today. The central bank’s revamp of its monetary and currency policy …
With Argentina reportedly set to announce a new and improved IMF credit line later today, in this Update we outline what investors should look out for in the deal. … What to look for in Argentina’s new IMF …
26th September 2018
The surprise resignation of Argentina’s central bank governor, Luis Caputo, and nationwide strikes – in protest against President Macri’s austerity plan – underscore the difficulty of fixing the country’s economic mess. Mr. Caputo reportedly clashed with …
25th September 2018
Today’s softer-than-expected inflation data from Mexico, which showed that price pressures were unchanged in the first half of this month, supports our view that the headline rate will resume its downwards trend in Q4. In contrast to the market, we expect …
24th September 2018
Support for Fernando Haddad, the presidential candidate of Brazil’s Workers’ Party, has risen over the past week and recent comments suggest that he is trying to distance himself from the party’s left-wing platform. That said, regardless of who wins …
21st September 2018
The statement that accompanied the Brazilian Central Bank’s meeting last night provided the first clear sign that it is preparing to tighten monetary conditions, with the first rate hike likely to come before the end of 2018. But the tightening cycle is …
20th September 2018
Argentina’s 2019 federal budget presented to Congress last night contains a large fiscal squeeze and, if implemented in full, would stabilise the public debt ratio. However, some key IMF requests have been sidestepped, and fiscal slippage is likely ahead …
18th September 2018
Argentina’s 2019 budget will reportedly contain some much-needed spending cuts, but key IMF requests are conspicuous by their absence. Meanwhile, Brazil’s election race is beginning to heat up, but the chances of major economic reform after the vote seem …
14th September 2018
Brazil’s presidential race is still very open, but the scale of the challenge the victor will face means that even a market-friendly president won’t be able to stabilise the public finances and boost potential growth significantly. Markets don’t appear to …
11th September 2018
The larger-than-expected 0.2% m/m gain in Mexican industrial production in July is an early sign that the slump in the sector in Q2 will reverse in Q3. This supports our view that Mexican GDP growth over the next 12 months or so will be stronger than most …
The Andean economies of Chile, Peru, and Colombia all appear to be close to raising interest rates. In this Update, we take a closer look at what has triggered central banks to begin tightening cycles in the past. The short point is that Chile’s central …
10th September 2018
The third consecutive monthly rise in Mexican inflation was driven by higher energy inflation, and is unlikely to spook Banxico. Accordingly, assuming the peso holds up reasonably well between now and the next meeting, the Board is likely to leave rates …
7th September 2018
The export tax announced by Argentina’s President Mauricio Macri this week, which formed the centrepiece of an emergency fiscal austerity package, will help to narrow the budget deficit. But the fact that more ambitious structural fiscal reforms on the …
The recent turmoil in local markets means that Argentina’s recession will be even deeper than we previously anticipated. We now expect a 4% drop in GDP over 2018 as a whole (vs. -0.5% previously), and a further 2% contraction next year. A sovereign …
6th September 2018
The decline in Brazilian inflation in August, to 4.2% y/y, adds to the reasons to think that Copom won’t raise interest rates at its meeting this month. Moreover, core inflation still looks quite soft and we think the pace of the eventual rate hikes over …
The statement accompanying the decision by Chile’s central bank to hold its policy interest rate at 2.50% flagged that a tightening cycle will begin in the coming months. We remain comfortable with our forecast for rates to begin rising at the next policy …
5th September 2018
The recent collapse in the Argentine peso has raised concerns about a sovereign default. As things stand, we think it’s most likely that the government will be able to service its upcoming debts. That said, failure to secure further IMF funding or fiscal …
4th September 2018
The small fall in Brazilian industrial production in July, of 0.2% m/m, provides further evidence that the economy’s recovery from the truck drivers’ strike in May has been soft. However, leading indicators do at least suggest that industry strengthened …
The sense of crisis that engulfed Argentina on Wednesday and Thursday seems to have eased today and, while there is a clear risk that the currency falls further in the near term, based on the real exchange rate it looks like the necessary adjustment may …
31st August 2018
The 0.2% q/q rise in Brazilian GDP in Q2 was a decent outturn given the disruptions to the economy caused by the truck drivers’ strike in late May. And growth is likely to strengthen in the second half of the year. However, downwards revisions to the …
The sell-off in the Argentine peso this month gathered pace after the government’s impromptu request to draw down more of its IMF bailout. Rather than soothing market tensions, this reinforced concerns about the government’s ability to service its debts. …
The Argentine government’s announcement that it wants to draw on more of its IMF bailout package reflects the harsh reality of large upcoming FX debt repayments, especially in November. But the collapse in the peso triggered by the news also highlights …
30th August 2018
The surge in GDP growth in Q2 to more than 5% in Chile and Peru probably marks the peak in both countries’ economic cycle. But there is still some spare capacity left. And, as a result, we expect that growth will remain strong in the coming quarters. Our …
29th August 2018
The preliminary bilateral trade deal between Mexico and the US, announced yesterday, is a far cry from the radical overhaul of the two countries’ trading relationship that many had feared. Tighter rules of origin and new labour content requirements in the …
28th August 2018
Today’s announcement of a bilateral trade agreement is definitely good news for Mexico and the US, but could be good or very bad for Canada. More generally, it illustrates that, despite the Trump administration’s intransigence over trade disputes in …
27th August 2018
A “handshake deal” between Mexico and the US on auto trade rules is apparently close, but several hurdles must be cleared before a new Nafta treaty is agreed. Elsewhere, Brazilian markets finally seem to be waking up to the risk of a populist victory in …
24th August 2018
Inflation in both Brazil and Mexico has been a bit higher than we had anticipated over the past few weeks, but we think the broad trend over the next year or so will be up in Brazil, and down in Mexico. Accordingly, interest rates are likely to head in …
23rd August 2018
The surge in Chilean GDP growth to 5.3% y/y in Q2 was driven mainly by a pick-up in domestic demand, and is likely to mark the peak in the cycle. Growth is likely to soften gradually from here. And our forecast for GDP growth over 2018 as a whole of 4.5% …
20th August 2018
Campaigning for Brazil’s elections in October started this week, and market-friendly candidate Geraldo Alckmin seems to have positioned himself well to mount a challenge to the leading populists. However, Mexico’s recent election, where expectations that …
17th August 2018
Colombian GDP growth increased from 2.2% y/y in Q1 to 2.8% y/y in Q2, and we think the recovery will strengthen by more than the consensus expects over the coming quarters. … Colombia GDP (Q2 …
15th August 2018
Turkey’s currency crisis, which could cause problems in its banking sector, has put the spotlight on EM banking vulnerabilities more generally. But while we had concerns about the health of Latin America’s banks a number of years ago, our latest Heat Map …
The Turkish lira may have surpassed the Argentine peso as the worst performing EM currency this year, but Argentine markets have still had a rough week. The lesson from other parts of Latin America is that, if Argentina’s escalating graft probe implicates …
10th August 2018
The stronger-than-expected Mexican industrial production figure for June was driven in part by a surge in utilities output, which is unlikely to be sustained. Even so, we still think that industrial production growth will pick up over the second half of …
The second consecutive monthly rise in Mexican inflation was driven largely by higher energy inflation, and is unlikely to spook Banxico. There’s a long way to go until the next policy meeting, but assuming the peso holds up well, the central bank is …
9th August 2018
Argentina’s central bank announced a tweak to its monetary policy framework last night which, in time, should help it to gain better control over monetary conditions. It also appears to have stopped monetising the government’s budget deficit, and has …
8th August 2018
Brazilian inflation rose to a higher-than-expected 4.5% y/y last month, but this reflects higher food and energy inflation which the central bank has made clear it will look through. Underlying price pressures still look weak. Elsewhere, the rise in …
Mexico’s central bank struck a hawkish tone in the statement accompanying this week’s monetary policy decision, and the markets are pricing in a good chance of another interest rate hike in the near term. But we still think that interest rates will be cut …
3rd August 2018
The 13.1% m/m jump in Brazilian industrial production in June confirmed that the sharp fall in output seen in May was a temporary result of the truck drivers’ strike in that month. But even so, it looks like the sector may have knocked about 0.5%-pts off …
2nd August 2018
The slightly more dovish language in the Brazilian central bank’s post-meeting statement adds weight to our view that policymakers are untroubled by the recent spike in inflation. And while a tightening cycle is set to begin over the next six months, rate …
The Peruvian sol has, despite the emergence of several headwinds, held up surprisingly well over the past few months. While we expect most currencies in the emerging world to weaken over the next 12-18 months, there are reasons to expect the sol to hold …
1st August 2018
The surprise contraction in Mexican GDP in Q2 was driven in part by a drop in agricultural production, which tends to be volatile, but growth in the services sector was also surprisingly weak. We think this should be a blip. Even so, following today’s …
31st July 2018
The sharp jump in headline inflation in Brazil over the past month has masked continued weakness in core inflation. And underlying price pressures should remain fairly subdued over the next 12-18 months. As a result, interest rates are likely to rise more …
30th July 2018
The relatively modest rise in the Mexican peso against the dollar in reaction to the positive news flow on Nafta talks suggests that investors are interpreting recent events with caution. Indeed, a number of sticking points – particularly labour content …
27th July 2018
