Itaú BBA - Weekly FI LatAm Strategy: Elections for Congress speakers in Brazil; Chile to hike; Colombia to stay

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Weekly FI LatAm Strategy: Elections for Congress speakers in Brazil; Chile to hike; Colombia to stay

January 28, 2019

In the Lower House, the reelection of Rodrigo Maia is, according to local news (Valor, Estado), the likely outcome

All Latam: The Chilean and Colombian central banks will hold their first monetary policy meetings of 2019, on Wednesday and Thursday respectively. We expect a 25bps hike in Chile and Colombia to remain on hold.

Most Latam rates declined last week (see charts), as the market factors in higher odds of a more benign scenario for emerging markets. This week the focus will be on US-China talks (Jan 30-31) led by Liu He and Robert Lighthizer, which may increase the likelihood of a trade deal and reduce global risks. Also, FOMC rate decision meeting will take place on Wednesday. We expect the committee to confirm the “patient and flexible” approach regarding the interest rate normalization and “adjust balance sheet policy if necessary”.

Brazil: Elections for Congress speakers take center stage on Friday. In the Lower House, the reelection of Rodrigo Maia is, according to local news (Valor, Estado), the likely outcome, given the number of parties that have already declared support for him. The Senate race is more uncertain, with two members of the MDB (Renan Calheiros and Simone Tebet) willing to join the race, as well as other members from other parties. The elections take place in two rounds, unless one member already secures the majority of votes in the first round.

News on the pension reform remain positive. News by the end of last week and during the weekend indicate the government will propose a stronger reform relative to the one currently in Congress (worth 1.4% of GDP in 10 years). Reportedly, President Jair Bolsonaro will go through surgery today, and is expected to analyze and present the reform to Congress after February 6th.

We continue to receive the NTN-B 2050 real rate (now at 4.60%) with a 20bps gain so far (see trade idea). Nominal rates tightened 15bps at the belly of the curve last week and just about 2bps at the long end.

Mexico: Local rates tightened strongly last week, declining 23bps at the belly and 27bps at the long end. In addition to the better environment for EMs, the softer-than-expected CPI figure helped local rates to tighten. On Wednesday, the statistics institute (INEGI) will publish the flash estimate of Q4’s GDP growth which we estimate at 1.9% year-over-year (down from 2.5% in 3Q18), taking 2018 annual growth to 2.0%.

 



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