LatAm Weekly – May 30

Mexico - All Eyes on Pemex and Banxico For the coming days, the market will focus squarely on the release of Pemex’s financing plan. Also, Pemex will release its business plan in June or July. The government prioritized resolving Pemex’s financial woes in order to boost the production of oil and gasoline. In fact , domestic oil production has continued to decline on the aggregate. Pemex, announced that production stood at 1.68 million of barrels per day in April, which is just 0.2% higher than in March which is 16% lower than one year ago. The combination of a higher inflation forecast, coupled with a Banxico that is concerned about the credibility implications of rate cutting too soon, pushed our monetary policy projections back to September or November. However, if inflation remains sticky and does not decrease, at a minimum, to a level below 4.0% YoY, then expect Banxico to keep the policy rate unchanged at 8.25%. Argentina – Stars Aligning for Macri Carlos Pagni , political analyst for La Nacion , argues in his latest Podcast that the stars might be aligning for a Macri rally . Also, the latest Opinaia -poll (May 18th) (link) published by newspaper el Clarin projects a Macri victory over the Fernandez/Fernandez ticket—51% to 49%—after controlling for undecided voters. However, absent the undecided vote, the Fernandez/Fernandez would likely best the Macri ticket with a 42% to 41% split. In addition to Pagni’s argument, there is an additional development aiding Macri’s campagin ; Sergio Massa has decided against joining the Fernandez/Fernandez ticket. Every additional day of ARS stability increases the chance of a Macri reelection. Also, any factor increasing the likelihood of Macri winning, further makes the FX calmer. This virtuous cycle appears to point to this Nash equilibrium. Chile – Minute: Wait, Wait, Don’t Tell Me…Are Rate Cuts are Coming? T he language in this minutes is powerful in opening the door for a one-off rate cut, perhaps even before the year’s end. If the June IPOM delivers more of the same, it could be a remarkable departure from the BCCh’s forward-looking guidance (previously suggesting hikes to now suggesting cuts) as it would be based on the output gap and not on GDP growth and/or inflation. The BCCh , in its most recently published minutes, suggests two things. First, there is more slack in the labor market than previously thought, which is likely associated with recent immigration. As of now, it is unclear how seriously the BCCh wants to cut rates, and thus we defer on a projection. Yet, given the discussion in the minutes, we can definitively erase any possible forecast of hikes in 2020. Therefore, we maintain our forecast of 3.0% for 2019. However, we now forecast a 3.0% rate throughout 2020 rather than, the previously expected, two 25bp hikes. We will be fixing our close attention on June’s IPOM to inform our view going forward.