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Summary of Latin America Weekly Market Economics - 07 September 2018

Core Content

This summary outlines key economic events and market outlooks for Latin America countries from 07 to 14 September 2018. It includes details on political developments, economic data releases, and central bank actions that are expected to influence market sentiment and investment decisions.

Key Events and Market Focus

Brazil

• Presidential Election Polls: The focus will be on the latest polls and retail sales figures, which are expected to set the tone for the upcoming October election.
• Retail Sales: The May retail sales report is anticipated to show a 0.6% monthly increase, with annual growth expected at 1.1%. This aligns with the view of improved credit conditions and higher disposable income.
• Central Bank Survey: The central bank will release a survey of economists' expectations, which may signal a shift toward tighter monetary policy.
• Economic Calendar:
  • Mon 10/09: Central bank weekly economists survey and trade balance report.
  • Tue 11/09: FGV inflation IGP-M preview and retail sales figures.
  • Wed 12/09: CPI and retail sales data.
  • Thu 13/09: Retail sales and services sector volume data.
  • Fri 14/09: Industrial production and vehicle sales data.

Mexico

• NAFTA Negotiations: The focus remains on ongoing NAFTA talks, with the US and Canada at the forefront, and Mexico potentially pursuing a bilateral trade deal.
• Industrial Production: Expected to decline further, with a forecast of -1.0% m/m and -0.5% y/y for July, due to manufacturing slowdown.
• Wage Data: August wage growth is expected to remain weak, continuing a trend of stagnation or decline.
• Formal Job Creation: Data on formal job creation for August is to be released, indicating a potential slowdown in the formalisation process.
• Economic Calendar:
  • Mon 10/09: Vehicle production report.
  • Tue 11/09: Industrial production and manufacturing data.
  • Fri 14/09: Formal job creation data.

Argentina

• IMF Talks: Market attention will center on ongoing negotiations with the IMF for early disbursement of funds, with the outcome likely to influence investor sentiment.
• Inflation: Expected to rise again in August, with a forecast of 4.00% m/m and 34.60% y/y, driven by core and regulated price components.
• Fiscal Policy: The government is aiming to achieve a primary fiscal balance a year earlier than planned, through a new export tax and reduced discretionary spending.
• Economic Calendar:
  • Thu 13/09: CPI and inflation data.
  • Fri 14/09: Formal job creation data.

Colombia

• Economic Recovery: Retail and manufacturing data will reinforce the ongoing recovery, with retail sales expected to grow at 5.5% y/y in July.
• Minimum Wage and Informal Economy: A new minimum wage hike could worsen unemployment, which is already at double-digit levels in urban areas. The high minimum wage has also contributed to the informal economy, resulting in an estimated $1.4%$ of GDP loss in government revenue.
• Tax Reform Debates: The government is pushing for a comprehensive tax reform, which is expected to include lowering corporate tax rates, broadening the tax base, and reducing VAT deductions. This has sparked heated debates among political parties.
• Economic Calendar:
  • Fri 14/09: Industrial production and retail sales data.

Chile

• Central Bank Policy: The central bank maintained the policy rate at 2.5%, but the tone of the statement was hawkish, suggesting potential rate hikes in October.
• Economic Calendar:
  • Mon 10/09: Central bank economists survey.
  • Fri 14/09: Vehicle sales data.

Main Points and Views

• Brazil: The rejection of Lula as a presidential candidate has shifted focus to his successor, Fernando Haddad. The retail sales data is expected to show gradual improvement, supporting the view of a recovery in the second half of 2018.
• Mexico: The auto sector and industrial production are key indicators of manufacturing performance. The weak wage growth and potential formal job creation slowdown signal a tight labor market with limited wage gains.
• Argentina: Inflation is expected to spike again, and the government is pushing for early IMF disbursement. The central bank is likely to keep rates unchanged, but pressure for further hikes may persist.
• Colombia: The economy is on a firmer recovery path, with manufacturing and retail showing growth. The upcoming tax reform is a major political and economic focus, with potential impacts on the formalisation of the labor market.
• Chile: The central bank's hawkish stance suggests a possible rate hike in October, as monetary stimulus is being reduced.

Key Information

• Economic Indicators: Retail sales, industrial production, inflation, and wage data are critical for assessing economic health in the region.
• Political Developments: Brazil's presidential election, Argentina's IMF negotiations, and Colombia's tax reform are central to the week's market dynamics.
• Monetary Policy: Central banks in Brazil, Argentina, and Chile are closely monitored for potential rate changes, with Chile's central bank indicating a possible move in October.
• Market Expectations: Investors are likely to react to the release of economic data and the progress of trade and fiscal negotiations.

Economic Calendar Highlights

Conclusion

The week ahead will be shaped by key economic data releases, political developments, and central bank decisions across Latin America. Brazil's election and retail sales, Mexico's manufacturing and trade talks, Argentina's inflation and fiscal negotiations, and Colombia's recovery and tax reform are all expected to influence market movements. Investors should closely monitor these events and their potential impact on economic and financial conditions in the region.