Itaú BBA - Uncertainties Linger in Global Markets

Latam FI Strategy Monthly

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Uncertainties Linger in Global Markets

February 19, 2016

In FX, the highlight was the hefty depreciation of the MXN; in rates, Colombia’s risk premium increase

For the full report, see enclosed file 


  • Markets have remained volatile since the beginning of the year. The world’s main central banks are taking steps to calm markets. The Fed has said it is monitoring global financial conditions. We believe the Fed will not hike the Fed Funds rate in March, as we expected before.  The European Central Bank (ECB) has signaled fresh stimulus measures and the Bank of Japan cut interest rates into negative territory.

  • The steps taken by central banks will tend to limit short-term financial risks, but are unlikely to avoid further market volatility. Markets should become calmer when positive (or stable) data on global activity becomes available.

  • Against this backdrop, Latin America continues to navigate trouble waters. Exchange rates remain volatile, although only currencies with closer ties to oil prices – Colombia and Mexico – depreciated significantly in January.
  • With inflation under pressure, most Central Banks remain on tightening mode.  However, the weak global economy could lead some central banks to resist further hikes, as in Brazil. Faced with global uncertainty, lower inflation and a deep recession, we now expect the BCB to cut rates in the second half of the year.

  • In FX, the current level of the CLP is aligned with the estimates of our financial models. The BRL and the COP continue to run rich by 9% and 11.2%, respectively. For rates, the scenario is more blurry. In Latin America outside of Brazil, monetary policy pricing is in line with our scenario, but there is continued uncertainty over the timing of convergence of longer-dated yields toward their theoretical steady-state level.


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