Itaú BBA - Thin-liquidity day in LatAm markets amid US holiday

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Thin-liquidity day in LatAm markets amid US holiday

September 4, 2017

In FX, Andean pairs traded range bound (COP: -0.02% to 2,932/USD; CLP: -0.03% to 624.55/USD).

With information available until 6:30pm Brasilia time

Highlights

  • In FX, Andean pairs traded range bound (COP: -0.02% to 2,932/USD; CLP: -0.03% to 624.55/USD). Finally, the MXN (-0.41% to 17.8876/USD) was the regional laggard. 
  • Brazilian yields at the very front end narrowed as 2017 inflation expectations receded (see Macro Backdrop). In DI futures, the Jan18 fell 3bps to 7.76%. The BRL closed at 3.1393/USD (+0.04%). 
Macro Backdrop

BRAZIL
  • 2017 GDP growth expectations increased to 0.50%. According to Focus survey, GDP growth expectations increased to 0.50% (+11bps) for 2017, after the higher than expected 2Q17 GDP print, and did not change for 2018 (2.00%), and 2019 (2.50%). Year-end Selic expectations remained flat for the three years horizon (2017 – 2019) at 7.25% for 2017, 7.50% for 2018, and 8.00% for 2019. IPCA inflation expectations declined to 3.38% (-7bps) for 2017 and to 4.18% (-2bps) for 2018, while it has remained flat at 4.25% for 2019.  Finally, the BRL marginally appreciated for the three years horizon: to 3.20/USD for 2017 (from 3.23/USD); to 3.35/USD for 2018 (from 3.38/USD); to 3.40/USD for 2019 (from (3.44/USD). 
  • We published our Scenario Review for the month of September. We revised upward our forecast for 2017 GDP growth, to 0.8% from 0.3%, while maintaining our call for 2018 at 2.7%. Our estimate for the average unemployment rate in 2018 was reduced to 12.4% from 13.3%. We revised downward our inflation estimate for 2017, to 3.2% from 3.4%, but maintained our 4.0% forecast for next year. We expect the Brazilian Central Bank’s Monetary Policy Committee (Copom) to decide on another 100-bp cut in the benchmark Selic rate in its September meeting. Full Report
MEXICO
  • We published our Scenario Review for the month of September. Given the solid performance of the economy in 1H17, we have revised our growth forecast for 2017 to 2.3%, from 2% previously. The shocks battering the economy (uncertainty over trade relations, inflation spike and falling oil output) seem to be moderating, which, coupled with a solid US economy, will likely sustain growth during the second half of the year. In 2018, we expect GDP growth at 2.1%, down from this year due to a less favorable carry-over. Full Report
CHILE
  • We published our Scenario Review for the month of September. Activity in the first half of the year confirmed that the Chilean economy is still slumbering. Investment remains a drag on activity as confidence levels stay low. We now expect growth of 1.3% this year (1.6% previously), with a pick-up to 2.5% next year, aided by higher copper prices, expansionary monetary policy and low inflation. Full Report
GLOBAL
  • Commodities Monthly Review: metals rally unlikely to last. Commodity prices dropped in August, as the rally in metal prices was offset by drops in agricultural and energy prices. In our view, the metal rally will fade as the Chinese economy decelerates in 2H17. We forecast iron ore prices at USD 60/mt and copper prices at USD 5700/t by the end of the year. Full Report
Market Developments 
  • GLOBAL MARKETS: Liquidity was thin due to the Labor Day in the US. European and Asian equity markets were on the red after North Korea conducted its sixth nuclear test on Sunday (September 3). Hence, haven assets posted gains (gold: +0.65%; CHF: +0.68%; JPY: +0.48%). Global Markets Tracker
  • CURRENCIES & COMMODITIES: Oil prices fell in the session (Brent: -0.80% to USD 52.37/USD). LatAm currencies were broadly stable in the session. The BRL closed at 3.1393/USD (+0.04%). Andean pairs traded range bound (COP: -0.02% to 2,932/USD; CLP: -0.03% to 624.55/USD). Finally, the MXN (-0.41% to 17.8876/USD) was the regional laggard. FX & Commodities Tracker
  • CDS SPREADS & EXTERNAL BONDS: LatAm credit spreads for the 5-year tenor fell in the session. Brazilian country risk receded 2bps to 191bps – renewed lowest level since December 2014. In Chile and Mexico, CDS fell 1bp to 57bps and 99bps, respectively. In Colombia, however, spreads were stable at 121bps. External Bonds and CDS Tracker
  • LOCAL RATES – Brazil: Brazilian yields at the very front end narrowed as 2017 inflation expectations receded (see Macro Backdrop). In DI futures, the Jan18 fell 3bps to 7.76%. Brazil Rates Tracker
  • LOCAL RATES - Mexico: Mexican yields traded range-bound on low liquidity, due to Labor Day in the US. The 1-year was flat at 7.36%. Mexico Rates Tracker
  • LOCAL RATES – Chile and Colombia: Andean markets traded on very low liquidity due to the US holiday. Short Chilean yields narrowed at the margin (9-month Camara swap: -1bp to 2.28%). Chile Rates Tracker In Colombia, IBR swaps were broadly stable (1-year flat at 4.87%). Colombia Rates Tracker

Upcoming Events

  • In Brazil, all eyes will be on the Copom meeting (Wed.). We expect the committee to cut the policy rate by 100bps, maintaining the easing pace of the previous decision. Then, August’s IPCA consumer inflation will be released (Wed.). We forecast a 0.32% monthly increase, with year-over-year inflation slowing to 2.6% from 2.7%. Moreover, after the approval of the TLP (new Long Term Interest Rate) in the Lower House Floor, the voting on the Senate is expected to happen on Tuesday. The provisional measure expires on Wednesday (September 6). On economic activity, July’s industrial production will be released (Tue.), for which we expect a 0.3% seasonally adjusted monthly increase. In addition, August’s coincident indicator for auto production (Anfavea) will be released (Wed.). 
  • In Mexico, the statistics institute (INEGI) will publish June’s gross fixed investment (Tue.). We forecast that gross fixed investment contracted 1% year-over-year (down from an expansion of 2.3% in May). Then, INEGI will announce August’s CPI inflation (Thu.). We expect a 0.47% month-over-month variation. 
  • In Chile, the BCCh will publish the GDP proxy (Imacec) for the month of July (Tue.). We expect the GDP proxy IMACEC to grow 0.5% from June, leading annual growth of 2.3% (1.4% in June). Moreover, the central bank will also publish the 3Q17 inflation report (Wed.). Regarding the policy rate, we expect the updated baseline scenario to infer a path somewhat below that outlined in various surveys (one additional 25-bp cut). Then, the central bank will release the trade balance figures for August (Thu.). We forecast a USD 250 million surplus (USD 235 million deficit in August 2016). Still, the National Institute of Statistics (INE) will publish nominal wage growth for July (Thu.). Finally, the National Institute of Statistics will publish inflation for the month of August (Fri.). We expect prices to increase 0.2% from July (0% in August 2016). 
  • In Colombia, the National Institute of Statistics will release inflation for August (Tue.). We expect consumer prices to gain 0.21% from July (-0.32% in August 2016), taking annual inflation to 3.95% back to the upper bound of the tolerance range. 
  • In Argentina, the car-makers association (ADEFA) will release August data on production, exports and domestic sales to car dealers (Tue.). 

For details, refer to our Monthly Strategy Report.

For details on Brazilian markets, refer to our Handbook - First edition.

Today's editors: Eduardo Marza, Pedro Correa




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