Fixed Income & Economics Daily Tuesday, March 15, 2016

Transcription

1 LATIN AMERICA & CEE FX, RATES & MACRO STRATEGY RESEARCH Fixed Income & Economics Daily Tuesday, March 15, 2016 FX & RATES STRATEGY RESEARCH David Duong Nicolas Kohn* Marcin Sulewski* Brendan Hurley BRAZIL: Political developments dominate market performance; economic activity disappoints COLOMBIA: Expectations Survey sees more hawkish path ARGENTINA: Lower House to vote on holdout agreement; Agricultural exports POLAND: Macro data may back PLN and push FRAs up BRAZIL: Political developments dominate market performance; economic activity disappoints Focus survey: Local economists cut 2016 inflation projections to 7.46% from 7.59% after the positive surprise in February s inflation, while keeping 2017 forecasts unchanged at 6.0%. On the growth side, the 2016 forecast was cut slightly to -3.54% while 2017 was left unchanged at 0.5%. Finally, on the Selic, while the market is pricing 75bps of cuts this year, economists left their 2016 and 2017 year-end projections unchanged at 14.25% and 12.5%, respectively. The market focus remained squarely on political developments following the street protests on Sunday, which many political pundits claim was one of the largest political acts in Brazil s history based on the size of the turnout. We believe attention is now falling on what the potential outcomes may be in case of a change in administration, rather than the strict binary focus on the probabilities of presidential impeachment. Contrary to the rally in risk assets last week, the DI curve exhibited a bear steepening bias with long end rates widening around 5bps and the currency weakening by 2% to USD/BRL Economics: Economic activity for January came in much lower than expectations with a decline in GDP of -8.12% y/y compared to the median forecast of -7.10%. Indeed, in monthly terms, our local Economists were expecting a small degree of expansion in January of around +0.25% m/m but instead the data revealed a contraction of -0.61% m/m. Our local Economists now forecast the IBC-Br will decline 1.3% q/q in 1Q16 and that economic activity will remain in contractionary territory until 3Q16. Survey respondents now expect the policy rate to reach 6.75% by April when previously they had expected hikes to stop in March at 6.50%. Curiously, in the period since the last survey, market pricing has moved to price a less hawkish near-term movement. At the time of the last survey, the market expected policy rates to reach 7.00% whereas now, the market expects a policy rate between 6.50% and 6.75%. On the inflation side, headline inflation expectations for December 2016 increased from 5.49% to 5.72% (currently 7.59%), 1y ahead inflation expectations fell from 4.54% to 4.41% and 2y ahead inflation expectations increased from 3.70% to 3.77%. In this respect, survey inflation expectations did not show the generalized improvement that might have been expected given the recent improvement in break-even inflation, which has compressed by nearly 50bps in 2019 tenors, moving from 5.05% at the time of the last expectations survey to 4.55% currently. Inflation Expectations COLOMBIA: Expectations Survey sees more hawkish path The Central Bank of Colombia released their March Expectations Survey on Monday in which expectations for rate hikes increased while inflation expectations were mixed. Source: Banco de la Republica. IMPORTANT DISCLOSURES/CERTIFICATIONS ARE ATTACHED. U.S. INVESTORS INQUIRIES SHOULD BE DIRECTED TO SANTANDER INVESTMENT SECURITIES INC. AT (212) / (212) *Employed by a non-us affiliate of Santander Investment Securities Inc. and not registered/qualified as a research analyst under FINRA rules, and is not an associated person of the member firm, and, therefore, may not be subject to the FINRA Rule 2711 and Incorporated NYSE Rule 472 restrictions.

2 ARGENTINA: Lower House to vote on holdout agreement; Agricultural exports After the US Court of Appeals from the Second Circuit decision on Friday, intensive talks were held yesterday ahead of today s session in the Lower House. Some supporters of the holdout agreement within the opposition called for the session to be postponed to analyze the impact of the Court of Appeal s decision. Finance Secretary Luis Caputo said over the weekend that the impact of the ruling would be limited in terms of sealing the agreement with holdout investors, according to a report in newspaper La Nacion. We expect the session to be extensive today and the outcome to be known after the market closes. We believe that the government will manage to get the necessary votes in the Lower House to pass the set of initiatives necessary to implement the holdout deal, but we reckon that uncertainty has been brought to the table in terms of sentiment among members of the Lower House after the decision of the Court of Appeals. The government would need 129 seats to secure the start of the session tomorrow and 135 to have the agreement passed in the Lower Chamber. We believe the government can grasp the votes from its alliance with UNEN-FAP- UCR (close to 100 votes) and also from the support of the Peronism led by Sergio Massa (43 votes) and from the block that separated from Frente para la Victoria party in February. 3.1% on the day against the US dollar on the prospect of strong exporter inflows before May. POLAND: Macro data may back PLN and push FRAs up On Monday, EUR/PLN continued the downside move seen on Friday. Although the scale of the move was clearly smaller than at the end of the week, the exchange rate managed to reach 4.27 intraday. The zloty was outperforming its CEE peers that remained stable (the forint) or lost (the ruble). Higher USD/RUB was driven by the significant plunge of the Brent price. Polish January C/A data is on the agenda on Tuesday. Our surplus forecast is well above the consensus ( 1398mn vs 389mn) and so this release could work in favor of the zloty. However, the room for appreciation may be limited by the already significant drop in EUR/PLN seen in the last weeks and investors waiting for Wednesday s FOMC decision. Polish bonds and IRS did not move much on Monday despite the strengthening seen in the euro zone peripheral debt market. A the same time, the FRA curve moved up 2bps at the beginning of the week and we think this may continue on Tuesday when the CPI data is due. Our forecast for February s inflation is slightly above the consensus (-0.6% y/y vs -0.7% y/y) and so this number could fit the not too dovish outcome of the March Monetary Policy Council meeting and tame market expectations for more rate cuts in Poland. Cereal and oilseed exporters sold USD486mn during the second week of March, per Ciara-cec data. Year-to-date, exporters sold an accumulated amount of USD4.88bn, more than double the figure sold in the same period last year. Support in the pipeline USD mn Week 2016 Avg Note: Short term CB papers. Source: Ciara-cec and Santander. As we move into April, export seasonality will kick in, providing support to the peso and therefore a relief in Lebacs. Indeed, on Friday last week the peso strengthened Fixed Income & Economics Daily, March 15,

3 LATAM ECONOMICS BRAZIL ECONOMICS Strong Decline in 1Q16 GDP Tatiana Pinheiro*, Adriana Dupita*, Everton Gomes*, Luciano Sobral*, Matheus Rosignoli*, Rodolfo Margato* The Central Bank Economic Activity Index (IBC-Br) declined 0.61% m/m in January, lower than our forecast and median market expectations (of +0.25% m/m and +0.20% m/m, respectively). The lower bound of forecasts collected by Bloomberg was -0.20% m/m. This result was the 11th consecutive fall of IBC-Br at the margin, and the worst year-over-year change (-8.1%) of the historical data series that commenced in Additionally, considering the coincident indicators released so far (e.g., vehicles production and sales, industrial capacity utilization rate, paper cardboard dispatches), we estimate another decrease for IBC-Br in February. With this, we now forecast this indicator will decline 1.3% q/q in 1Q16, in-line with our expectation that GDP will drop around 1.0% q/q in the same period. In our view, economic activity will continue to fall until 3Q16, albeit at declining rates, followed by some stabilization only at the end of the year. We expect GDP to plunge 3.7% in % 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Mar-14 May-14 Central Bank's Economic Activity Index % MoM - seasonally adjusted series Jul-14 Sep-14 Source: Brazil Central Bank Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 3% 2% 1% 0% -1% -2% -3% -4% IBC-Br and GDP - % QoQ (seasonally adjusted series) IBC-Br GDP 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Source: Brazil Central Bank and IBGE Real GDP Growth % QoQ - seasonally adjusted series T14 2T14 3T14 4T14 1T15 2T15 3T15 4T15 1T16 2T16 3T16 4T16 Source: IBGE Forecasts: Santander The Central Bank s Focus survey, also released yesterday, showed significant changes in market expectations regarding inflation indexes and the exchange rate. We highlight the decrease in the median market expectation for 2016 IPCA, from 7.59% to 7.46%, reflecting February s lower-than-expected result. For 2017, the consensus remained at 6.00%. Concerning the IGP-M and IGP-DI indexes, the market forecast for 2016 year-end fell to 7.77% from 7.97% and to 7.60% from 7.83%, respectively. For these two wholesale price indexes, the market forecast for 2017 was kept constant at 5.50%. Fixed Income & Economics Daily, March 15,

4 Regarding the exchange rate, the market forecast for 2016 year-end BRL/USD fell to 4.25 from For 2017, consensus, flat at BRL4.40/USD since January, dropped to BRL4.34/USD. Regarding economic activity, the market consensus for 2016 GDP growth edged down again, to -3.54% from -3.50%; for 2017, the market forecast stayed constant at +0.50%. Lastly, for the interest rate path, market consensus still expects the Selic rate to be constant at 14.25% by 2016 yearend, diverging from what the yield curve is pricing in. For the end of 2017, median market expectations point to the Selic at 12.50%, unchanged from the previous survey. Median of Market's Expectations for Inflation, GDP, Interest Rate and Exchange Rate Expectations to... February February March March 22nd 29th 7th 14th IPCA % 7.57% 7.59% 7.46% 7.0% IPCA % 6.00% 6.00% 6.00% 6.0% IGP-DI % 7.83% 7.83% 7.60% 7.4% IGP-DI % 5.50% 5.50% 5.50% 6.0% GDP % -3.45% -3.50% -3.54% -3.7% GDP % 0.50% 0.50% 0.50% 1.2% Selic end % 14.25% 14.25% 14.25% 13.0% Selic end % 12.50% 12.50% 12.50% 11.5% R$/US$ end R$/US$ end Source: Central Bank Expectations Report Santander Forecast December s National Household Sample Survey provides labor market indicators on a three-month moving average basis for the entire national territory will hit the wires today. We estimate the unemployment rate edged up to 8.9% in October-December last year, a much higher level compared with the 6.5% registered in the same period in With this, we believe the annual average of the unemployment rate rose to 8.6% in 2015 from 6.8% in Moreover, the deeper and widespread contraction in economic activity supports our expectation that the unemployment rate will climb this year. We forecast it will increase to 12.8% in 2016 from 10.0% in 2015 end of period, seasonally adjusted series. Fixed Income & Economics Daily, March 15,

5 LATAM ECONOMIC EVENTS CALENDAR Time (EDT) Country Indicator Period Prior Consensus Forecast Units Comment Monday, March 14, :30 AM BZ Economic Activity MoM Jan % Change 7:30 AM BZ Economic Activity YoY Jan % Change 2:00 PM BZ Trade Balance Weekly 13-Mar-16 1,239 Millions 5:00 PM CO Retail Sales YoY Jan % Change 5:00 PM CO Industrial Production YoY Jan % Change 10:30 AM MX Formal Job Creation Total Feb 142 Thousands Tuesday, March 15, :00 AM BZ National Unemployment Rate Dec % PE Economic Activity YoY Jan % Change PE Unemployment Rate Feb % Ratio Wednesday, March 16, :00 AM BZ FGV Inflation IGP-10 MoM Mar % Change 7:00 AM BZ FGV CPI IPC-S 15-Mar % Change Thursday, March 17, :00 PM CL Overnight Rate Target 17-Mar % 5:00 PM CO Trade Balance Jan -1, , Millions 5:00 PM CO Imports CIF Total Jan 4,159 3,838 Million USD 5:00 PM CO GDP YoY 4Q 3.30 % Change 5:00 PM CO GDP QoQ 4Q 0.60 % 5:00 PM CO GDP Full Year YoY 7-Jul % Friday, March 18, :00 AM BZ FIPE CPI - Weekly 15-Mar % Change 7:00 AM BZ IGP-M Inflation 2nd Preview Mar % Change 7:30 AM CL Current Account Balance 4Q -2, , Millions 7:30 AM CL GDP QoQ 4Q % Change 7:30 AM CL GDP YoY 4Q % Change MX Aggregate Supply and Demand 4Q % Change 3:00 PM MX Overnight Rate 18-Mar % Concern about exchange rate volatility and its impact on inflation Sources: Bloomberg and Santander. Fixed Income & Economics Daily, March 15,

6 SWAPS & FX RATES CURVE SWP SPR SWAPS Brazil - DI Chile - CLP/Camara Mexico - TIIE Last 1D 1W 1M Last 1D 1W 1M Last 1D 1W 1M CDI Camara TIIE Jul M M Jan y y Jan y y Jan y y Jan y y Jul-16/Jan M/1Y M/1Y Jul-16/Jan Y/2Y Y/2Y Jan-17/Jan Y/5Y Y/5Y Jan-18/Jan Y/10Y Y/10Y Jan-21/Jan Y/10Y Y/10Y Jan. ' Y Y Jan. ' Y Y Jan. ' Y Y September 12, 2008 = 100 LatAm Currency Performance (Since Sep 2008) FX CORRELATION MATRIX* Variable BRL MXN CLP COP S&P DXY Index WTI price CDS 5Y Commodities** *6M trailing correlation of weekly returns BRL MXN COP CLP Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 LATAM CURRENCIES Spot 1D 1W 1M ARS/USD % 4.09% -1.23% BRL/USD % 3.43% 9.09% CLP/USD % -0.38% 4.69% COP/USD % -1.24% 9.09% MXN/USD % 0.02% 7.90% PEN/USD % 3.55% 5.45% SELECTED CROSSES BRL/EUR % 2.57% 11.31% MXN/EUR % -0.78% 10.04% CLP/BRL % -3.67% -4.20% COP/BRL % -4.51% 0.00% MXN/BRL % -3.30% -1.09% CLP/MXN % -0.33% -3.13% COP/MXN % -1.03% 0.87% Sources: Bloomberg and Santander. **CRB index for BRL, WTI for MXN, copper for CLP, soybean for ARS, coffee for COP. Fixed Income & Economics Daily, March 15,

7 LOCAL MARKET BONDS & IMPLIED POLICY RATE CHANGES BRAZIL MEXICO NOMINAL BONDS Last 1D 1W 1M Duration LTN Jul LTN Jan LTN Jan NTN-F Jan NTN-F Jan NTN-F Jan NTN-F Jan NTN-F Jan NTN-F Jan Jun % Dec % Jun-17 5% Dec % Jun % Dec % Jun-20 8% Jun % Jun % Dec-23 8% Dec-24 10% Mar % Jun % May % May % Nov % Nov-36 10% Nov % Nov % % Brazil Implied Selic Rate 14.25% 14.00% 13.75% 13.50% Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep % Chile Implied Camara Rate 4.25% 4.00% 3.75% 3.50% 3.25% Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep % Mexico Implied TIIE Rate 4.25% 4.00% 3.75% 3.50% Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 BRAZIL MEXICO CHILE INFLATION LINKERS Real Yield Last 1D 1W 1M Duration NTN-B Aug NTN-B Aug NTN-B May NTN-B Aug NTN-B Aug NTN-B Aug NTN-B Aug UDIBONO 3Y UDIBONO 10Y UDIBONO 20Y UDIBONO 30Y UF 5Y UF 10Y Spread between 1Y/1Y fwd and 1Y* Chile Mexico Brazil Colombia Sources: Bloomberg and Santander. * Implied Banxico rates derived from the 28-day TIIE futures minus the historical spread between 28-day TIIE and Banxico O/N rate. **Calculated based on swaps curves, but calculated based off the government generic curve in Brazil and Colombia. Fixed Income & Economics Daily, March 15,

8 CONTACTS / IMPORTANT DISCLOSURES LATIN AMERICA MACRO STRATEGY RESEARCH Macro Research Maciej Reluga* Head Macro, Rates & FX Strategy CEE maciej.reluga@bzwbk.pl Sergio Galván* Economist Argentina sgalvan@santanderrio.com.ar Maurício Molan* Economist Brazil mmolan@santander.com.br Juan Pablo Cabrera* Economist Chile jcabrera@santander.cl David Franco* Economist Mexico dafranco@santander.com.mx Tatiana Pinheiro* Economist Peru tatiana.pinheiro@santander.com.br Piotr Bielski* Economist Poland piotr.bielski@bzwbk.pl Marcela Bensión* Economist Uruguay mbension@santander.com.uy Fixed Income Research David Duong Macro, Rates & FX Strategy Brazil, Peru dduong@santander.us Brendan Hurley Macro, Rates & FX Strategy Colombia, Mexico bhurley@santander.us Juan Pablo Cabrera* Chief Rates & FX Strategist Chile jcabrera@santander.cl Nicolas Kohn* Macro, Rates & FX Strategy - LatAm nicolas.kohn@santandergbm.com Aaron Holsberg Head of Credit Research aholsberg@santander.us Equity Research Christian Audi Head LatAm Equity Research caudi@santander.us Andres Soto Head, Andean asoto@santander.us Walter Chiarvesio* Head, Argentina wchiarvesio@santanderrio.com.ar Valder Nogueira* Head, Brazil jvalder@santander.com.br Pedro Balcao Reis* Head, Mexico pbalcao@santander.com.mx Electronic Media Bloomberg SIEQ <GO> Reuters Pages SISEMA through SISEMZ This report has been prepared by Santander Investment Securities Inc. ( SIS ) (a subsidiary of Santander Investment I S.A., which is wholly owned by Banco Santander, S.A. ( Santander ), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. ( Santander Investment Bolsa ), and in the United Kingdom by Banco Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS, Santander London and Santander Investment Bolsa are members of Grupo Santander. ANALYST CERTIFICATION: The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: David Duong, Tatiana Pinheiro*, Adriana Dupita*, Everton Gomes*, Luciano Sobral*, Matheus Rosignoli*, Rodolfo Margato*, Sergio Galvan*, Rodrigo Park*, Martin Mansur*, Cristian Cancela*, David Franco*, Marcin Sulewski*, Nicolas Kohn*. *Employed by a non-us affiliate of Santander Investment Securities Inc. and not registered/qualified as a research analyst under FINRA rules, and is not an associated person of the member firm, and, therefore, may not be subject to the FINRA Rule 2242 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. 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