LatAm Weekly – June 13th

LatAm – Moody’s at Natixis On Monday, June 10th we hosted Moody’s LatAm sovereign team. Our takeaways from this meeting follow. Argentina – Pichetto will help with governability, if Macri wins Pichetto’s main contribution as VP would stem from his penchant for implementing structural reforms. Macri’s chances of winning reelection are linked to the path of inflation, the Argentine peso, and economic activity. Chile – IPOM does not suggest additional cuts The BCCh cut 50bps on Friday, June 7th. The central bank said that the surprising cut was because it had increased its potential GDP growth estimation widening the output gap. It also lowered its estimate of the neutral rate by 25bps. The BCCh will likely leave the policy rate unchanged at 2.75% throughout 2019 and start hiking in early 2020 if growth does not disappoint. Mexico – IP for April was not bad despite a negative headline number Industrial Production (IP) for April contracted by 2.9% YoY, which is more negative than the Bloomberg survey expected at -2.2% YoY. However, this is misleading. If one looks at the seasonally adjusted monthly comparison, growth seems acceptable. Mexico - Heath killed the receiving trade In our view, Jonathan Heath signaled that Banxico will not be in a position to cut rates. However, GDP growth continues to fall. Also, 10-year US Treasury yields continue to edge lower. Therefore, the 10-2 spread will likely hit new lows. The curve might yet invert further. Mexico – The Trump Tariff threat will continue On June 7th, President Trump canceled his tariff threat after accepting Mexican efforts to prevent further illegal immigration into the US from Central America. However, this saga is not over. Peru – An update Congress might be getting closer to approving a key political reform after Prime Minister Martin Vizcarra won a confidence vote. Growth seems to be slowing and could open the door to further rate cuts.