LatAm Weekly – July 22-26

Argentina – The growing economy is a big deal Recent economic developments seem to be breaking in favor of the in-power government. Inflation is coming down, the USDARS has been remarkably stable, while the weather has been supportive of a critical harvest season, as a result, the economy is now growing. May’s Economic Activity Index came out at 2.6% YoY, smashing the market’s 0.3% expectation. This is the first positive, annual, growth rate since March 2018. The monthly adjusted figure came out to 0.20% MoM SA. March was the only month to have recorded a negative rate of change throughout 2019. Brazil – Sub-part growth expectation, and decreasing inflation, allows for rate cuts July’s IPCA-15 surprised on the downside side at 0.09% MoM—below market expectations (0.13%). This is the second straight month of decreasing annual IPCA-15 at 3.27% . T he IMF lowered its 2019 forecast of Brazil’s GDP growth to 0.8% YoY from 1 - 1.5% YoY. Natixis is remaining pat with its 1.0% YoY forecast for 2019 GDP growth as it believed that authorities will utilize a basket of policies intended to jump-start consumption. One such action could be the use of unemployment funds (FGTS). Natixis forecasts that the BCB will cut its Selic rate in September. The combination of a lower neutral rate (due to the passage of reforms) and a widening of the output gap will push the policy rate to 5.75 – 6.00% according to our model. Chile – More rate cuts are coming We now expect the central bank of Chile (BCCh) to cut the policy rate to 2.00% from the current level of 2.50% with two rate cuts of 25bps on September 30th and October 31st. The Camara swap curve has 60 basis points of cuts priced in for the coming 11-months. However, the curve also prices in a policy rate increased to around 2.25% in two years. The USDCLP continues to appreciate in-line with EMFX rally, which is supported by a weak dollar. While, copper prices have somewhat rallied, they still remain 7% below their level from 3-months ago. Our change of call is the result of the BCCh’s most recent policy rate communique. Mexico – Low inflation is enough for a cutting cycle Inflation for the first two weeks of July was in-line with expectations. But, more importantly, it was low enough for Banxico to start cutting on August 15th.