Itaú BBA - S&P Downgrades Argentina to B from B+, Outlook Stable

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S&P Downgrades Argentina to B from B+, Outlook Stable

November 13, 2018

The downgrade was due to deterioration of debt profile, growth perspectives and dynamic of inflation

Talk of the Day

Argentina

Argentina’s credit rating was lowered to B from B+ by S&P Global Ratings, due to deterioration of debt profile, growth perspectives and dynamic of inflation, following setbacks in implementing the economic adjustment program. The outlook on the rating is stable, based on expectation that the government will implement fiscal, monetary, and other measures to stabilize the economy over the coming 18 months. The rating agency expects GDP  to contract 2.5% this year and by nearly 1% in 2019 before recovering modestly in 2020. Inflation is expected by S&P to end the year around 44% and may decline only gradually toward 25% in 2019.

Brazil

The BCB released its weekly survey with market participants. According to the Focus survey, the IPCA inflation expectations declined 17 bps for 2018 to 4.23% (in line with our forecast); slightly receded to 4.21% for 2019 (from 4.22%) and remained stable at 4.00% for 2020. Median forecasts for the exchange rate remained stable at BRL 3.70/USD for 2018, appreciated to BRL 3.76/USD for 2019 (from BRL 3.80/USD), and did not change for 2020 (at BRL 3.78/USD). The year-end Selic rate remained stable for the three years horizon (2018 – 2020): at 6.50% for 2018, and 8% for 2019 and 2020. The median GDP growth expectations remained stable at 1.36% for 2018, and 2.50% for both 2019 and 2020.

Day Ahead: September’s Retail Sales will be released at 9:00 AM (SP Time). We forecast a 0.6% mom/sa decrease on core retail sales (consensus: 0.1%) and a 1.0% mom/sa decline on the broad segment (consensus: -0.4%).

All LatAm

Weekly Fixed Income LatAm Strategy: Banxico to hike; in Brazil, all eyes on the new economic team. In Mexico, local rates continued to sell off last week, with the highlight being the 5-year TIIE rate rising 14bps to 8.84%. The deterioration continues to be caused by domestic policy concerns. Although rates are at historically-high levels, we have no position in Mexican local rates. In Brazil, the rally in local rates finally ended (or took a pause) last week. The front-end and the belly were mostly unchanged, while the long-end widened between 20 and 40bps. We took profits on our DI Jan 21 receiver last Wednesday, after a strong gain, and are waiting for clearer signs on the reformist agenda to receive real rates in the belly and the long end of the curve, which are still very attractive.
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