Macro Vision February 20, 2017

Size: px
Start display at page:

Download "Macro Vision February 20, 2017"

Transcription

1 Macro Vision February 20, 2017 Finding MXN equilibrium in more challenging conditions Traditional exchange rate models indicate that the Mexican peso is undervalued. When presenting the results, we are often asked what the fair value is if the deterioration of the energy balance seen over the past few years is permanent, and how protectionism in the U.S. would alter the equilibrium exchange rate. To address these questions, we estimate the non-oil exports and imports as a function of the real exchange rate as well as other macro variables (internal demand, U.S. industry, etc.) and calculate the necessary depreciation to generate a non-oil surplus that is sufficient to offset the decline in energy exports and import tariffs in the U.S. Our results show that the Mexican peso is still undervalued, even if the U.S. imposes a 20% import tariff on Mexico s products and the loss of energy exports is permanent. However, under a border tax adjustment, the currency likely has more room to weaken. Fundamentals point to undervaluation Traditional exchange rate models indicate the Mexican peso is undervalued. If we calculate Mexico s real exchange rate as a function of the relative productivity between Mexico and the U.S., terms of trade, sovereign risk (more specifically, the 5-year CDS) and the interest rate differential with the U.S., we estimate the Mexican peso should be trading at around 18.1 to the dollar currently. When presenting the results, we often hear two questions: what is the fair value if the deterioration of the energy balance seen over the past few years is permanent, and what is the fair value if protectionism materializes. However, at least some of the impact of potential protectionism in the U.S. and deterioration in the energy balance are already captured in the model. The deterioration in the energy balance is partly associated with lower oil prices (terms of trade is one of the explanatory variables). Between 2013 and 2016, Mexico s energy balance deteriorated by around 2% of GDP. If energy export prices (mostly crude oil) and energy import prices (mostly refined products, which fell by less than crude prices) were unchanged, the deterioration would have been more modest (around 0.7% of GDP). Furthermore, the risk of protectionism and the lower net energy exports have a negative impact on sovereign risk. In order to address the impact of lower net energy exports and protectionism on the Mexican peso, we first try to remove any effect on the currency related to these two factors from our model. Then we will treat the two factors using a separate set of equations and assumptions. Mexico s 5-year CDS has been decoupled from its peers since early If there wasn t the underperformance, the CDS would be trading currently at around 100 bps (instead of 145 bps). Now, assuming terms of trade at its long-run average (more precisely, the average of the 20-year period ended in 2015, which is 19% above the current level) and correcting the 45-bp underperformance of Mexico s CDS, the fair value of the Mexican peso would be 16.5 to the dollar. This is our counterfactual scenario: one that mimics the absence of the energy balance deterioration and the threat of protectionism. Please refer to the last page of this report for important disclosures, analyst and additional information. Itaú Unibanco or its subsidiaries may do or seek to do business with companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the single factor in making their investment decision.

2 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Macro Vision February 20, bps Mexico's CDS is decoupling bps Mexico CDS 5Y (RHS) EM average CDS Source: Bloomberg, Itaú Trade openness helps dealing with shocks We estimate four equations (non-oil exports to the U.S., non-oil exports to other destinations, non-oil imports from the U.S., non-oil imports from other destinations). Non-oil exports to the U.S. are explained by the USDMXN real exchange rate, U.S. manufacturing production and the USDCNY real rate (as China competes with Mexico in the U.S. market, a weaker CNY hurts Mexico s exports). Non-oil exports to other destinations are explained by LatAm GDP and by the Mexican peso against a basket of LatAm currencies (in real terms). Imports from the U.S. are a function of the USDMXN real rate, internal demand in Mexico and nonoil exports to the U.S. (consistent with the fact that a large portion of Mexico s products sold in the U.S. use intermediate goods produced in the U.S.). Finally, non-oil imports from other destinations are explained by internal demand and by the Mexican peso against a basket of LatAm currencies. Elasticities of Exports and Imports Trade ex-oil with U.S. Trade Ex-oil Ex-U.S. Exports Imports Exports Imports USDMXN (Real) US Manufacturing 2.1 USDCNY (Real) -1.5 Internal Demand Non-oil exports to U.S. 0.5 GDP LatAm 3.5 MXN/Latam FX (real) Source: Itaú. An interesting result from this model is that the trade balance of Mexico is highly sensitive to the exchange rate, given the degree of openness of the economy. For example, a 10% multilateral real depreciation of the exchange rate lifts Mexican exports by 2.4%. At the same time, it reduces imports by 2.7% (also considering the positive impact of higher exports to the U.S. on Mexico s intermediate goods imports). However, given the weight of non-oil exports and non-oil imports on Mexico s GDP (33% each, approximately), these variations improve the trade balance by 1.8% of GDP. Page 2

3 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% The CNY matters for Mexico % of GDP Non-oil trade balance MXN/CNY Real (RHS) -4.0% 7 Apr-95 Aug-99 Dec-03 Apr-08 Aug-12 Dec-16 Source: Haver, Itaú What MXN depreciation offsets the loss of oil exports? The next step is to calculate the necessary depreciation to generate a non-oil trade balance that offsets the worsening of the energy balance. To be more precise, the energy balance in 2016 was 2.3% of GDP lower than its previous 20-year average. 2.5% 2.0% % of GDP Energy Trade Balance 1.5% 1.0% 0.5% 0.0% -0.5% Average % -1.5% Source: Haver, Itaú Based on these equations, we estimate the real exchange rate would need to weaken by 12% against the dollar (assuming all other currencies in the models are stable versus the USD) to generate a 2.3% of GDP improvement in the non-oil trade balance. So, without protectionism and assuming the energy balance deterioration is permanent, the Mexican peso s fair value would be 18.5 to the dollar (starting from the 16.5 level, which is the equilibrium exchange in the counterfactual scenario described above). The MXN facing protectionism And what would the impact of protectionism be? Suppose the U.S. imposes a 20% tariff on Mexico s exports. The impact on non-oil exports to the U.S. (we assume Mexico can redirect its energy exports without a significant cost) would be similar to a 16.7% appreciation of the Mexican peso against the dollar (USDMXN goes down by 16.7%, to be more precise): they would fall by 3.8%, meaning a loss of 1.0% of GDP. However, Page 3

4 considering the U.S. content in Mexican exports, we estimate that non-oil imports from the U.S. would fall by 0.3% of GDP. So, the net impact would be 0.7% of GDP, without assuming trade retaliation measures by the Mexican government (which could make Mexico s imports fall more). We estimate that a 4% depreciation (assuming other currencies are unchanged against the dollar) would offset the 0.7% of GDP loss. Thus, if the energy balance deterioration is permanent and a 20% import tariff is imposed on Mexico s products in the U.S., the fair value of the peso would be 19.2 pesos to the dollar. How about the border tax? The whole world would be affected by a border tax, so the assumption that the other currencies would stay unchanged against the dollar doesn t hold. Let s accept the textbook model that says that there is an appreciation of the dollar of enough magnitude to leave all the trade accounts in the world unchanged if a border tax is imposed. For example, a border tax with a corporate tax rate of 20% means that if the Mexican peso (and each of the other currencies) depreciates by 25% against the dollar (USDMXN up by 25%), all the trade accounts would be the same. In all, if the textbook model holds, a scenario of permanent deterioration of the energy balance and border tax would leave the fair value of the Mexican peso at 23.1 to the dollar. However, due to frictions and potential retaliations, the adjustment of the dollar may not be so perfect, which would have a significant impact on exports and imports to and from the U.S. The potentially disruptive effects of the border tax mean that the Mexican peso (and possibly many currencies) will likely overshoot before the exchange-rate market puts all the trade accounts back in the pre-border tax equilibrium. Too much bad news seem to be priced in, but more weakening is possible In all, our analysis suggests that the Mexican peso remains undervalued, even given harsh assumptions (20% tariff on Mexico s exports to the U.S. and no reversal of oil exports with the energy reform). However, with a border tax, such as the one currently discussed in the U.S. Congress, the currency has more room to weaken. On the other hand, our exercises do not consider the local political dynamics. As the odds of a victory of a non-establishment candidate in the 2018 presidential elections rise, new hurdles for the peso could emerge. For example, the energy reform could be slowed down, as it is up to the executive power to conduct the oil auctions at a pace it determines. Also, public debt (at 50% of GDP) is already high, and rising, so potential expansionary policies may trigger a more meaningful deterioration of sovereign risk. João Pedro Bumachar Alexander Müller Macro Research Itaú Mario Mesquita Chief Economist Tel: Click here to visit our digital research library. Page 4

5 Relevant Information 1. This report has been prepared and issued by the Macro Research Department of Banco Itaú Unibanco S.A. ( Itaú Unibanco ). This report is not a product of the Equity Research Department of Itaú Unibanco or Itaú Corretora de Valores S.A. and should not be construed as a research report ( relatório de análise ) for the purposes of the article 1 of the CVM Instruction NR. 483, dated July 06, This report aims at providing macroeconomics information, and does not constitute, and should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell any financial instrument, or to participate in any particular trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date on which this report was issued and has been obtained from public sources believed to be reliable. Itaú Unibanco Group does not make any express or implied representation or warranty as to the completeness, reliability or accuracy of such information, nor does this report intend to be a complete statement or summary of the markets or developments referred to herein. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which it was issued and are, therefore, subject to change without notice. Itaú Unibanco Group has no obligation to update, modify or amend this report and inform the reader accordingly. 3. The analyst responsible for the production of this report, whose name is highlighted in bold, hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions and were prepared independently and autonomously, including from Itaú Unibanco, Itaú Corretora de Valores S.A. and other group companies. 4. This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of Itaú Unibanco. Additional information on the financial instruments discussed in this report is available upon request. Itaú Unibanco and/or any other group companies is not, and will not be liable for any investment decisions (or otherwise) based on the information provided herein. Additional Note to reports distributed in: (i) U.K. and Europe: The sole purpose of this material is to provide information only, and it does not constitute or should be construed as a proposal or request to enter into any financial instrument or to participate in any specific business strategy. The financial instruments discussed in this material may not be suitable for all investors, and are directed solely at Eligible Counterparties and Professionals as defined by the Financial Conduct Authority. This material does not take into consideration the objectives, financial situation or specific needs of any particular client. Clients must obtain financial, tax, legal, accounting, economic, credit and market advice on an individual basis, based on their personal characteristics and objectives, prior to making any decision based on the information contained herein. By accessing the material, you confirm that you are aware of the laws in your jurisdiction relating to the provision and sale of financial service products. You acknowledge that this material contains proprietary information and you agree to keep this information confidential. Itau BBA International plc (IBBAInt) exempts itself from any liability for any losses, whether direct or indirect, which may arise from the use of this material, from its content and is under no obligation to update the information contained in this document. Additionally, you confirm that you understand the risks related to the financial instruments discussed in this material. Due to international regulations not all financial instruments/services may be available to all clients. You should be aware of and observe any such restrictions when considering a potential investment decision. Past performance and forecast are not a reliable indicator of future results. The information contained herein has been obtained from internal and external sources and is believed to be reliable as of the date in which this material was issued, however IBBAInt does not make any representation or warranty as to the completeness, reliability or accuracy of information obtained by third parties or public sources. Additional information relative to the financial products discussed in this material is available upon request. Itau BBA International plc registered office is 20th floor, 20 Primrose Street, London, United Kingdom, EC2A 2EW and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN ) Itau BBA International plc Lisbon Branch is regulated by Banco de Portugal for the conduct of business. Itau BBA International plc has representative offices in France, Germany, Spain which are authorised to conduct limited activities and the business activities conducted are regulated by Banque de France, Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin), Banco de España respectively. For any queries please contact your relationship manager; (ii) U.S.A: Itau BBA USA Securities, Inc., a FINRA/SIPC member firm, is distributing this report and accepts responsibility for the content of this report. Any US investor receiving this report and wishing to effect any transaction in any security discussed herein should do so with Itau BBA USA Securities, Inc. at 767 Fifth Avenue, 50th Floor, New York, NY 10153; (iii) Asia: This report is distributed in Hong Kong and Japan by Itaú Asia Securities Limited, which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities) regulated activity. Itaú Asia Securities Limited accepts all regulatory responsibility for the content of this report. In Hong Kong, any investors wishing to purchase or otherwise deal in the securities covered in this report should contact Itaú Asia Securities Limited at 29th Floor, Two IFC, 8 Finance Street Central, Hong Kong; (iv) Middle East: This report is distributed by Itau Middle East Limited. Itau Middle East Limited is regulated by the Dubai Financial Services Authority and is located at Suite 305, Level 3, Al Fattan Currency House, Dubai International Financial Centre, PO Box , Dubai, United Arab Emirates. This material is intended only for Professional Clients (as defined by the DFSA Conduct of Business module) no other persons should act upon it; (v) Brazil: Itaú Corretora de Valores S.A., a subsidiary of Itaú Unibanco S.A authorized by the Central Bank of Brazil and approved by the Securities and Exchange Commission of Brazil, is distributing this report. If necessary, contact the Client Service Center: * (capital and metropolitan areas) or (other locations) during business hours, from 9 a.m. to 8 p.m., Brasilia time. If you wish to re-evaluate the suggested solution, after utilizing such channels, please call Itaú s Corporate Complaints Office: (on business days from 9 a.m. to 6 p.m., Brasilia time) or write to Caixa Postal , São Paulo-SP, CEP * Cost of a local call. Page 5

FX and Capital Markets

FX and Capital Markets FX and Capital Markets Highlights of the Week May, 7 BRL outperforms peer currencies during the week BRL remains virtually stable in a week of emerging market currencies depreciation Falling commodity

More information

FX and Capital Markets

FX and Capital Markets FX and Capital Markets Highlights of the Week June, 7 Weaker U.S. labor market boosts the BRL Brazilian currency rebounds Weaker figures on the U.S. labor market undermined the dollar against many currencies,

More information

FX and Capital Markets

FX and Capital Markets FX and Capital Markets Highlights of the Week November, 1 Domestic and international drivers pressure the BRL Brazilian currency underperformed its peers last week Improved data on the U.S. economy released

More information

Brazil: FX and Capital Markets Highlights of the Week

Brazil: FX and Capital Markets Highlights of the Week Brazil: FX and Capital Markets Highlights of the Week Monday, April 7, 1 Currency flow remains positive Brazilian currency maintained the good performance of the previous weeks. The real kept last week

More information

Macro Vision June 13, 2017

Macro Vision June 13, 2017 Macro Vision June 13, 2017 Country risk: how far can it reach? The global environment has been favorable to emerging markets, despite the recent drop in commodity prices. Better global growth and lower

More information

Brazil: FX and Capital Markets Highlights of the Week

Brazil: FX and Capital Markets Highlights of the Week Brazil: FX and Capital Markets Highlights of the Week Monday, May 11, 1 International Market Reopens for Brazilian Issuances Brazilian currency appreciated again last week. Notwithstanding some depreciation

More information

Macro Vision October 2, 2017

Macro Vision October 2, 2017 Macro Vision October 2, 2017 How the TLP can impact monetary policy In this report, we estimate that, when fully implemented, the new long-term interest rate (TLP) will allow a reduction of about 2.2 p.p.

More information

Macro Vision December 12, 2016

Macro Vision December 12, 2016 Macro Vision December 12, 2016 FAQs: Social Security Reform (PEC 287) The Brazilian government recently sent to Congress a Social Security reform proposal (PEC 287), the next step in the structural fiscal

More information

Electoral Polls: Datafolha

Electoral Polls: Datafolha Macro Research Electoral Polls: Datafolha January -, 1 Datafolha Polls Summary 1. Voting Intentions First Round. Rejection Rates First Round. Voting Intentions by region. Voting Intentions by income. Voting

More information

Macro Brazil July 21, 2017

Macro Brazil July 21, 2017 Macro Brazil July 21, 2017 Copom Cockpit: The disinflationary scenario prevails The Brazilian Central Bank's Monetary Policy Committee (Copom) will meet again next week. Recent data pictures an environment

More information

Macro Vision July 25, 2016

Macro Vision July 25, 2016 Macro Vision July 25, 2016 Is Brazil coming out of the recession? Leading indicators already show some positive signs for activity. Does this mean that the economy is already coming out of the recession?

More information

Macro Research Economic outlook

Macro Research Economic outlook Macro Research Economic outlook Macroeconomic Research Itaú Unibanco December 2017 Roadmap Global Economy Solid global growth and higher interest rates in 2018 We expect global growth to continue at 3.8%

More information

Public Sector Posts a Primary Deficit in May

Public Sector Posts a Primary Deficit in May Brazil Monday, June 30, 2014 Public Sector Posts a Primary Deficit in May Highlights The public sector posted a primary deficit of 11.0 billion real in May, the lowest for the month in the series started

More information

Daniel Scioli leads the race to the presidency in October, but a runoff with Mauricio Macri in November is likely.

Daniel Scioli leads the race to the presidency in October, but a runoff with Mauricio Macri in November is likely. Latam in Depth Wednesday, September 09, 2015 ARGENTINA The day after Daniel Scioli leads the race to the presidency in October, but a runoff with Mauricio Macri in November is likely. The new administration

More information

Macro Vision December 16, 2016

Macro Vision December 16, 2016 Macro Vision December 16, 2016 Brazilian states in crisis: diagnosis and solutions The financial crisis in the Brazilian states is structural and was caused by growing expenses, uncoordinated and badly

More information

IU-MCI measures the market conditions and is also a good leading indicator of economic growth in the country, as indicated by econometric exercises.

IU-MCI measures the market conditions and is also a good leading indicator of economic growth in the country, as indicated by econometric exercises. Macro Vision Tuesday, September, 5 Itaú Unibanco Market Conditions Index We present the Itaú Unibanco Market Conditions Index IU-MCI for the Brazilian economy. IU-MCI measures the market conditions and

More information

Commodities Monthly Review

Commodities Monthly Review Commodities Monthly Review March 9, 2016 We forecast higher oil and lower iron ore prices Iron-ore prices rose to USD 60/ton from USD 40/ton, but fundamentals for the sector still point to the downside,

More information

Brazil Review March 1, 2018

Brazil Review March 1, 2018 Brazil Review March 1, 2018 Central Bank near the end of the easing cycle The Brazilian economy in February 2018 The Central Bank reduced the benchmark Selic interest rate by 25 bps to 6.75% and signaled

More information

Macro Research Economic outlook

Macro Research Economic outlook Macro Research Economic outlook Macroeconomic Research Itaú Unibanco April 2018 Roadmap Global Economy Global growth on track, trade risk to fade Global growth has kept up a good pace, supported by easy

More information

Brazil Review. Depreciation of the Real Sharpens. The Brazilian Economy in March 2015

Brazil Review. Depreciation of the Real Sharpens. The Brazilian Economy in March 2015 Brazil Review Wednesday, April 01, 2015 Depreciation of the Real Sharpens The Brazilian Economy in March 2015 GDP growth reached 0.1% in 2014. The latest confidence and employment indicators showed a further

More information

Macro Vision June 13, 2017

Macro Vision June 13, 2017 Macro Vision June 13, 2017 ECB: The tricky road to monetary policy normalization The Euro Area growth has improved, but inflation needs time to catch up. This scenario allows the ECB to recognize that

More information

Macro Research Economic outlook

Macro Research Economic outlook Macro Research Economic outlook Macroeconomic Research Itaú Unibanco August 2017 Roadmap Global Economy Positive environment for emerging markets continues Global growth remains solid. We revised our GDP

More information

Sector Insights. Autos. Sales Performance Remains Strong. Passenger Cars and Light Commercial Vehicles

Sector Insights. Autos. Sales Performance Remains Strong. Passenger Cars and Light Commercial Vehicles Sector Insights Tuesday, May 28, 2013 Autos Sales Performance Remains Strong Following all-time-high sales of passenger cars and light commercial vehicles in 2012, which were stimulated by government incentives,

More information

Macro Research Economic outlook

Macro Research Economic outlook Macro Research Economic outlook Macroeconomic Research Itaú Unibanco January 2018 Roadmap Global Economy Goldilocks scenario continues Global growth to remain at 3.8% in 2018. Growth in developed countries

More information

Commodities Monthly Review

Commodities Monthly Review Commodities Monthly Review Monday, December 02, 2013 Higher Iron Ore, Lower Crude Oil Prices We are raising our iron ore price forecasts due to stronger-than-expected demand and lower capacity from high-cost

More information

Global Monetary Policy Monitor

Global Monetary Policy Monitor Global Monetary Policy Monitor Thursday, December, Brazil and Indonesia are the exception In November, 6 countries announced monetary policy decisions, six of them changing the monetary policy rate. The

More information

Brazil Review June 1, 2018

Brazil Review June 1, 2018 Brazil Review June 1, 2018 Truckers strike on the spotlight The Brazilian economy in May 2018 The government approved several measures to end the truck driver s strike, with negative fiscal impact. GDP

More information

Weakening Fiscal Performance in the 1Q14

Weakening Fiscal Performance in the 1Q14 Brazil Wednesday, April 30, 2014 Weakening Fiscal Performance in the 1Q14 Highlights The public sector s primary budget surplus was slightly better than expected in March (actual: 3.6 billion real; consensus:

More information

Brazil Review March 1, 2017

Brazil Review March 1, 2017 Brazil Review March 1, 2017 Congress debates Social Security Reform The Brazilian economy in February 2017 The Lower House Special Committee began its analysis of the Social Security Reform. The government

More information

Macro Vision June 13, 2018

Macro Vision June 13, 2018 Macro Vision June 13, 2018 2018 FIFA World Cup Russia : Who has the greatest chances of winning? During the next few weeks, billions will direct their eyes toward Russia, the country hosting the 2018 World

More information

Scenario Review - Brazil

Scenario Review - Brazil Scenario Review - Brazil August 8, 2017 Tougher fiscal challenges The tax hike is not enough to meet the primary budget target, which will still require extraordinary revenues and other compensatory measures

More information

Markets Stabilize, GDP Grows 2.3% in 2013

Markets Stabilize, GDP Grows 2.3% in 2013 Brazil Review Monday, March 03, 2014 Markets Stabilize, GDP Grows 2.3% in 2013 The Brazilian economy in February 2014 Financial markets have stabilized, with appreciation of the Brazilian real and a decline

More information

Commodities Monthly Review

Commodities Monthly Review Commodities Monthly Review June 2015 Lower agricultural prices despite El Niño Aggregate commodity prices have declined 2.7% since the end of April. We expect a 5.3% increase from current levels by year-end,

More information

Scenario Review - Brazil

Scenario Review - Brazil Scenario Review - Brazil June 9, 2017 A setback for reforms and a more challenging scenario A more turbulent political scene tends to delay reforms in Congress, making fiscal rebalancing more difficult

More information

Real Estate The pace of sales continues to fall in the residential market. The number of launches came down, but inventories remain high.

Real Estate The pace of sales continues to fall in the residential market. The number of launches came down, but inventories remain high. Brazil Orange Book July 2015 No signs of stabilization With information through July 06, 2015 This report, published six times per year, summarizes anecdotal information on current economic conditions

More information

Global Monetary Policy Monitor

Global Monetary Policy Monitor Global Monetary Policy Monitor January 017 Lower interest rates in South America In January, monetary policy decisions took place in 15 of the 33 countries that we monitor. On the tightening side, Turkey

More information

Macro Vision August 30, 2017

Macro Vision August 30, 2017 Macro Vision August 30, 2017 Reforms could bring Brazil s potential GDP to 3.5% We have estimated Brazil s potential GDP based on the evolution of the economy since 1961. A fiscal adjustment that increases

More information

Scenario Review Chile

Scenario Review Chile Scenario Review Chile September 4, 2017 Sluggish growth persists Activity in the first half of the year confirmed that the Chilean economy is still slumbering. Investment remains a drag on activity as

More information

Labor Market, Production Costs and Prices Faced with low growth, the appetite for hiring is low, and more sectors are announcing forced vacations.

Labor Market, Production Costs and Prices Faced with low growth, the appetite for hiring is low, and more sectors are announcing forced vacations. Brazil Orange Book Monday, July 07, 2014 Weak Consumption, Production falls With information through July 3, 2014 This report, published six times per year, summarizes anecdotal information on current

More information

Global Monetary Policy Monitor

Global Monetary Policy Monitor Global Monetary Policy Monitor March 017 Interest rate paths diverge in Latin America In April, there were monetary policy decisions in 19 of the 33 countries we monitor. The number of central banks cutting

More information

Macro Vision. Uncertain Recoupling Road for Latin America

Macro Vision. Uncertain Recoupling Road for Latin America Macro Vision Thursday, January 23, 2014 Uncertain Recoupling Road for Latin America From 2010 to 2013, emerging markets (EM) became the main engine of global growth, decoupling from advanced nations. Apparently,

More information

Macro Vision November 23, 2017

Macro Vision November 23, 2017 Macro Vision November 23, 217 Argentina Facing the moderate inflation challenge While the Central Bank of Argentina has made progress in fighting inflation since 21, consumer prices continue expanding

More information

Released last Friday, industrial production came at 3.57% year-on-year in August, weaker than market estimates (3.8) and higher than our call (2.5).

Released last Friday, industrial production came at 3.57% year-on-year in August, weaker than market estimates (3.8) and higher than our call (2.5). LatAm Talking Points LatAm Talking Points: Mexican Manufacturing Declines in August Talk of the Day Mexico Released last Friday, industrial production came at 3.57% year-on-year in August, weaker than

More information

The peace deal advances, while the economy slows

The peace deal advances, while the economy slows Latam in Depth Monday, October, 1 The peace deal advances, while the economy slows The fall of oil prices are reducing economic growth in Colombia, weakening the exchange-rate and worsening external and

More information

Sector Insights. Brazil s Steel Industry: Still a Challenging Scenario Ahead

Sector Insights. Brazil s Steel Industry: Still a Challenging Scenario Ahead Sector Insights Monday, August 05, 2013 Brazil s Steel Industry: Still a Challenging Scenario Ahead Low global growth and high inventories are constraining international and domestic steel prices, limiting

More information

Recovery Disappoints, Real Depreciates

Recovery Disappoints, Real Depreciates Brazil Review Monday, December 03, 2012 Recovery Disappoints, Real Depreciates The Brazilian economy in November 2012 The economic recovery disappointed in the third quarter, increasing the doubts about

More information

Global Monetary Policy Monitor

Global Monetary Policy Monitor Global Monetary Policy Monitor July 01 Less stimulus than expected In July, there were monetary-policy decisions in 0 of the 31 countries we monitor. Three countries increased stimulus, but only one, Malaysia,

More information

Brazil Review. Rising Concerns about Inflation. The Brazilian economy in February 2013

Brazil Review. Rising Concerns about Inflation. The Brazilian economy in February 2013 Brazil Review Friday, March 01, 2013 Rising Concerns about Inflation The Brazilian economy in February 2013 The Central Bank reinforced its message against inflation, saying that the interest rate is the

More information

Global Monetary Policy Monitor

Global Monetary Policy Monitor Global Monetary Policy Monitor October 01 Few movements in October, still expansionary In October, there were monetary policy decisions in 17 of the 33 countries we monitor. The global trend remains expansionary.

More information

Brazil Currency Perspectives

Brazil Currency Perspectives , on. November 29 Brazil Currency Perspectives Research Ana Esteves + 351 21 381 19 ana.esteves@itaueuropa.pt María Insausti + 351 21 381 1149 maria.insausti@itaueuropa.pt Bruno Baptista + 351 21 381 1136

More information

Macro Vision August 4, 2017

Macro Vision August 4, 2017 Macro Vision August 4, 2017 Labor reform: Potential impacts In international comparisons, Brazil has one of the world s most inefficient labor markets. This report discusses aspects that make the Brazilian

More information

China and Hong Kong Forex Market Developments One-way appreciation carrying into the new year

China and Hong Kong Forex Market Developments One-way appreciation carrying into the new year China and Hong Kong Forex Market Developments One-way appreciation carrying into the new year January 218 Monthly publication Alicia Garcia Herrero Chief Economist Asia Pacific +852 39-868 alicia.garciaherrero@natixis.com

More information

Scenario Review - Brazil

Scenario Review - Brazil Scenario Review - Brazil January 2013 Unsteady State Intervention in the foreign-exchange market reveals that the economic policy goals and preferences may change, as could interest rates over the coming

More information

On public finances; On financial asset prices; The risks seem to come from:

On public finances; On financial asset prices; The risks seem to come from: May 7 - Would a rise in interest rates be dangerous in the United States? Financial markets expect a very small rise in interest rates, both shortterm and long-term, in the United States. This expected

More information

Flash Economics. What to expect from the rise in oil prices for growth in the euro zone and France? 16 January

Flash Economics. What to expect from the rise in oil prices for growth in the euro zone and France?  16 January 6 January 7 - What to expect from the rise in oil prices for growth in the euro zone and? We look at the cases of the euro zone and. We begin with the rise in inflation caused by that in oil prices and

More information

Roger Yuan Goldman Sachs (Asia) L.L.C. (+852)

Roger Yuan Goldman Sachs (Asia) L.L.C. (+852) Goldman Sachs Research Precious Metals Gold caught in a tug-of-war May 2014 Roger Yuan Goldman Sachs (Asia) L.L.C. (+852) 2978-6128 roger.yuan@gs.com The Goldman Sachs Group, Inc. does and seeks to do

More information

Macro Research Economic outlook

Macro Research Economic outlook Macro Research Economic outlook Macroeconomic Research Itaú Unibanco April 2017 Roadmap Global Economy The global outlook remains favorable Global growth positive momentum continues, with a synchronized

More information

Flash Economics. Why has the euro zone s current-account balance improved? 25 August

Flash Economics. Why has the euro zone s current-account balance improved?  25 August August 07-97 Why has the euro zone s current-account balance improved? The euro zone s trade and current-account balances have improved rapidly since 0. We attempt to determine the degree to which this

More information

Has no impact on growth; Leads to a rise in interest rates;

Has no impact on growth; Leads to a rise in interest rates; April 7-7 What happens in the United States when there is a restrictive monetary policy combined with an expansionary fiscal policy? It now seems relatively clear that over the next two years there will

More information

China and Hong Kong Forex Market Developments RMB made the nine-month peak and FX reserves further expanded

China and Hong Kong Forex Market Developments RMB made the nine-month peak and FX reserves further expanded China and Hong Kong Forex Market Developments RMB made the nine-month peak and FX reserves further expanded August 217 Monthly publication Alicia Garcia Herrero Chief Economist Asia Pacific +852 39-868

More information

Flash Economics. What is the direction of the causality between real interest rates and total factor productivity growth?

Flash Economics. What is the direction of the causality between real interest rates and total factor productivity growth? 7 October 7 - What is the direction of the causality between real s and total factor productivity growth? It is usually thought that the decline in real s in OECD countries is due to the decline in total

More information

Economic Outlook January, 2012

Economic Outlook January, 2012 Economic Outlook January, 2012 Summary Global economy Low global growth scenario, tail risks have become smaller. Risks (Debt Ceiling, elections in Italy, growth in Europe). Brazil Activity shows signs

More information

Global growth buoys LatAm assets

Global growth buoys LatAm assets Global growth buoys LatAm assets LatAm Fixed Income Strategy Monthly April 25, 2017 Highlights Global growth positive momentum continues, with a synchronized pick-up in activity indicators. Barring a negative

More information

Flash Economics. The acceleration in global trade is very good for the euro zone; what accounts for it?

Flash Economics. The acceleration in global trade is very good for the euro zone; what accounts for it? 1 July 17 - The acceleration in global trade is very good for the euro zone; what accounts for it? Since the second half of 1, global trade in volume terms has accelerated, lifting euro-zone exports. First,

More information

Flash Economics. International monetary system: Return to Bretton Woods September

Flash Economics. International monetary system: Return to Bretton Woods September 7 September 17-117 International monetary system: Return to Bretton Woods Bretton Woods is the name given to the internal monetary system that prevailed from the second half of the 199s to the early 1s.

More information

Flash Economics. 11 January

Flash Economics.  11 January January 8 - Why did the dollar depreciate against the euro from to 8? An important question for predicting the dollar/euro exchange rate today We examine the causes of the dollar s depreciation against

More information

Scenario Review Brazil

Scenario Review Brazil Scenario Review Brazil August 2014 Activity Stalls; Inflation Wanes We have lowered our 2014 GDP growth forecast to 0.6% from 0.7%, given the apparent slowness of economic activity recovery after the World

More information

LatAm Talking Points: Brazilian Economic Activity Edges Up in October

LatAm Talking Points: Brazilian Economic Activity Edges Up in October LatAm Talking Points LatAm Talking Points: Brazilian Economic Activity Edges Up in October Talk of the Day Brazil Out this morning, the Central Bank s economic activity index gained 0.36% seasonallyadjusted

More information

Flash Economics. What difference does it make having a stable oil price at 50 dollars a barrel or an oil price rising by 10 dollars per year?

Flash Economics. What difference does it make having a stable oil price at 50 dollars a barrel or an oil price rising by 10 dollars per year? 8 June 7-9 What difference does it make having a stable oil price at dollars a barrel or an oil price rising by dollars per year? Since the end of, oil prices have remained stable at around dollars a barrel

More information

Flash Economics. The end of quantitative easing in the euro zone: Will banks step in for the ECB to buy government bonds?

Flash Economics. The end of quantitative easing in the euro zone: Will banks step in for the ECB to buy government bonds? 8 November 7-7 The end of quantitative easing in the euro zone: Will banks step in for the ECB to buy government bonds? As the ECB probably will stop quantitative easing in the euro zone in 8, it will

More information

Flash Economics. What happens when the Federal Reserve starts raising its interest rates? 14 September

Flash Economics. What happens when the Federal Reserve starts raising its interest rates?  14 September 1 September 1-9 What happens when the Federal Reserve starts raising its interest rates? We think that the economic situation in the United States and the need to build up some monetary policy leeway will

More information

Flash Economics. One concern in the United States: Commercial real estate. 07 October

Flash Economics. One concern in the United States: Commercial real estate.  07 October 7 October 1-119 One concern in the United States: Commercial real estate We believe there is now a bubble in US commercial real estate, and we seek to determine whether this is the greatest weak spot in

More information

In particular, we want to see whether: We find: The causes appear to be:

In particular, we want to see whether: We find: The causes appear to be: 1 January 17 - Are we able to explain the trends in employment and unemployment in France in 1? In France, 1 was marked by fairly modest growth and a fairly significant fall in unemployment, which is surprising.

More information

Flash Economics. US monetary policy: What matters more: The Fed Funds rate or the size of the Federal Reserve s balance sheet?

Flash Economics. US monetary policy: What matters more: The Fed Funds rate or the size of the Federal Reserve s balance sheet? March - US monetary policy: What matters more: The Fed Funds rate or the size of the Federal Reserve s balance sheet? Monetary policy is transmitted to the US economy primarily via longterm interest rates

More information

Monetary Policy under Fed Normalization and Other Challenges

Monetary Policy under Fed Normalization and Other Challenges Javier Guzmán Calafell, Deputy Governor, Banco de México* Santander Latin America Day London, June 28 th, 2018 */ The opinions and views expressed in this document are the sole responsibility of the author

More information

Flash Economics. Could there no longer be any credible reserve currency? 22 March

Flash Economics. Could there no longer be any credible reserve currency?  22 March 22 March 217-311 Could there no longer be any credible reserve currency? We consider an extreme situation in which there would no longer be any credible international reserve currency: If Donald Trump's

More information

ANZ-Roy Morgan NZ Consumer Confidence

ANZ-Roy Morgan NZ Consumer Confidence ANZ Research ANZ-Roy Morgan NZ Consumer Confidence 1 February 219 This is not personal advice. It does not consider your objectives or circumstances. Please refer to the Important Notice. Pretty happy

More information

Flash Economics. What adjustments are possible when unemployment returns to the structural unemployment level?

Flash Economics. What adjustments are possible when unemployment returns to the structural unemployment level? June 1 - What adjustments are possible when unemployment returns to the structural unemployment level? It seems clear that unemployment is now close to the structural unemployment rate in the, the euro

More information

Flash Economics. The more Germany accumulates external assets, the more unlikely a break-up of the euro zone and the more a strong euro hurts Germany

Flash Economics. The more Germany accumulates external assets, the more unlikely a break-up of the euro zone and the more a strong euro hurts Germany 1 June 17-7 The more Germany accumulates external assets, the more unlikely a break-up of the euro zone and the more a strong euro hurts Germany Germany has excess savings because of lasting structural

More information

Flash Economics. Are Asian countries now managing their exchange rates based on movements in the Chinese RMB?

Flash Economics. Are Asian countries now managing their exchange rates based on movements in the Chinese RMB? 20 December 2016-1366 Are Asian countries now managing their exchange rates based on movements in the Chinese RMB? Asian countries (South Korea, Philippines, Thailand, Indonesia, Malaysia, Taiwan) are

More information

Flash Economics. Over-expansionary monetary policies: A real estate bubble always appears in the end. 16 January

Flash Economics. Over-expansionary monetary policies: A real estate bubble always appears in the end.  16 January 1 January 17 - Over-expansionary monetary policies: A real estate bubble always appears in the end Central banks always have the same behaviour: they refuse to "lean against the wind", i.e. to fight against

More information

MIXED MESSAGES. KEY POINTS The ANZ Truckometer indexes lifted in August.

MIXED MESSAGES. KEY POINTS The ANZ Truckometer indexes lifted in August. ANZ RESEARCH 11 September 18 CONTACT: Sharon Zollner Chief Economist Telephone: +6 9 357 9 Email: Sharon.Zollner@anz.com The next issue of the ANZ Truckometer is scheduled for release on 9 October 18 at

More information

The Itaú Social Well-Being Index

The Itaú Social Well-Being Index Macro Vision Monday, April 16, 2012 The Itaú Social Well-Being Index Summary: We constructed an indicator for Brazil taking into consideration not only economic factors, but also human factors and income

More information

Video March 1, StratTV at the TMT Conference. Watch the video: Related Research

Video March 1, StratTV at the TMT Conference. Watch the video: Related Research March 1, 2016 Video StratTV at the TMT Conference MORGAN STANLEY & CO. LLC Adam S. Parker, Ph.D. Adam.Parker@morganstanley.com Video March 1, 2016 +1 212 761-1755 Watch the video: Related Research US Equity

More information

Flash Economics. The common characteristics of countries where labour force skills are weak. 25 October

Flash Economics. The common characteristics of countries where labour force skills are weak.  25 October 5 October 17-13 The common characteristics of countries where labour force skills are weak We look at four OECD countries where labour force skills are weak: the United States, France, Spain and Italy.

More information

Flash Economics. Does fiscal policy change course when the long-term interest rate goes above or below the growth rate?

Flash Economics. Does fiscal policy change course when the long-term interest rate goes above or below the growth rate? August 17-9 Does fiscal policy change course when the long-term interest rate goes above or below the growth rate? We look at fiscal policy in the United States, the United Kingdom, Germany, France, Spain

More information

Figure 1. ANZ Heavy Traffic Index and GDP. Heavy traffic index, 3-month avg (LHS) Figure 2. ANZ Light Traffic Index and GDP

Figure 1. ANZ Heavy Traffic Index and GDP. Heavy traffic index, 3-month avg (LHS) Figure 2. ANZ Light Traffic Index and GDP ANZ Research ANZ NZ Truckometer 1 March 19 This is not personal advice. It does not consider your objectives or circumstances. Please refer to the Important Notice. CONTACT: Sharon Zollner Chief Economist

More information

Flash Economics. The three types of capitalism. 21 December

Flash Economics. The three types of capitalism.  21 December The three types of capitalism 1 December 1-11 We believe there are simultaneously three forms of capitalisms in the world nowadays: "Financial", shareholder-focused, Anglo-Saxon capitalism: companies decisions

More information

Flash Economics. The discount rate of supply-side policies. 16 May

Flash Economics. The discount rate of supply-side policies.  16 May The discount rate of supply-side policies 1 May 1-5 Supply-side policies (reduction in labour costs, increased labour market flexibility and competition, reduction in public spending to free up room to

More information

Flash Economics. Gradually less expansionary monetary policy in the United States: Could it trigger a rise in long-term interest rates?

Flash Economics. Gradually less expansionary monetary policy in the United States: Could it trigger a rise in long-term interest rates? 1 September 1-95 Gradually less expansionary monetary policy in the United States: Could it trigger a rise in long-term interest rates? Given the decent quality of the economic outlook, the rise in inflation

More information

ANZ-Roy Morgan NZ Consumer Confidence

ANZ-Roy Morgan NZ Consumer Confidence Index ANZ Research ANZ-Roy Morgan NZ Consumer Confidence 1 December 18 This is not personal advice. It does not consider your objectives or circumstances. Please refer to the Important Notice. Hark the

More information

CORPORATE & INVESTMENT BANKING

CORPORATE & INVESTMENT BANKING 1 April 17-7 Can we find a reason not to be concerned about the euro-zone countries public debt ratios? Public debt ratios are very high in France, Italy, Spain, Portugal and Belgium. Should we be concerned

More information

Flash Economics. Because the structural unemployment rate is high in the euro zone, its growth phases are shorter than in the United States

Flash Economics. Because the structural unemployment rate is high in the euro zone, its growth phases are shorter than in the United States 7 August 17-99 Because the structural unemployment rate is high in the euro zone, its growth phases are shorter than in the The structural unemployment rate is far higher in the euro zone than in the,

More information

Seventh City of London Biennial Meeting 2013

Seventh City of London Biennial Meeting 2013 Seventh City of London Biennial Meeting 2013 Looking Ahead with Optimism and Realism The World in Recovery: Global Currency Trends George Athanasopoulos Group Managing Director Co-Head of Global Foreign

More information

Flash Economics. What must we assume if we do not believe long-term interest rates will rise sharply in the peripheral eurozone

Flash Economics. What must we assume if we do not believe long-term interest rates will rise sharply in the peripheral eurozone December - 7 What must we assume if we do not believe long-term interest rates will rise sharply in the peripheral eurozone countries? If we believe a sharp rise in long-term interest rates in the peripheral

More information

Flash Economics. What is the ECB s real objective? 05 December

Flash Economics. What is the ECB s real objective?   05 December What is the ECB s real objective? December 7 - The ECB s monetary policy is surprisingly expansionary given the cyclical position of the euro zone, and will remain so even though the central bank will

More information

FOMC preview: Status quo on expected lines

FOMC preview: Status quo on expected lines In Focus: US Fed Treasury Research Group For private circulation only FOMC preview: Status quo on expected lines We expect the Fed to maintain status quo with minor changes made to the policy statement.

More information

FX Swaps and Forwards

FX Swaps and Forwards Dollar Funding of Second-to-Last Resort September 218 Zach Pandl Goldman, Sachs & Co. +1 212-92-5699 zach.pandl@gs.com Co-Head of Global FX, Rates and EM Strategy Goldman Sachs does and seeks to do business

More information

Flash Economics. Two very important structural differences between Germany and the rest of the euro zone: How can the euro zone function?

Flash Economics. Two very important structural differences between Germany and the rest of the euro zone: How can the euro zone function? 17 July 17-8 Two very important structural differences between and the rest of the euro zone: How can the euro zone function? To simplify, we divide the euro zone into and the other eurozone countries,

More information