LatAm Daily Update

Mexico (+)

The IMEF manufacturing index for February should be released later today. We expect to see a number that suggests the expansion of this sector during March (forward looking). Automobile assembly continues to be a dynamic sector that keeps supporting manufacturing indicators and that should ultimately be reflected in a better export performance. In addition, we also expect IMEF’s non-manufacturing numbers to improve during February as other coincident indicators suggest that faster consumption trends are now being reflected in the services sector and thus support economic activity in the months to come.

Brazil (+)

The Brazilian real appreciated more than 2% during Friday’s trading session. Better-than-expected fiscal numbers for January alongside announcements of higher payroll taxes for some sectors cemented the good performance of the real. We believe this trend may continue as long as the new economics team continues to pledge fiscal austerity measures and thus should improve sentiment in the short term. Conversely, slow growth and political coordination remain the biggest threats to the ongoing stabilisation plan. At the end of the day, we think that the government and probably the CB too would like to see a weaker BRL to support the economy. The key should be the pace at which the currency depreciates in order to do so in an orderly fashion and avoid second-order effects as much as possible.
Separately, last Friday’s central bank survey shows that growth estimates continue placing growth for 2015 in deeper negative territory as consensus now expects growth to be around -0.58% from basically flat a month ago. Growth expectations for 2016 remain unchanged at 1.50%. In addition, inflation expectations continue to deteriorate to 7.47% by 2015’s year-end. The 2016 year-end estimate has remained relatively stable at 5.5%.
Finally, do not forget this Wednesday’s COPOM meeting. The DI curve shows implicit expectations for a 50bp rate hike.

Chile (=)

The central bank of Chile released the minutes from the rate setting meeting held on 12 February.The minutes were interesting as they showed that during that meeting the only option discussed by the central bank board was to keep the O/N rate unchanged. The document goes further to elaborate on the still high inflation rate that Chile has been experiencing. On that front, a weaker CLP remains as the main culprit, however, the tone of the minutes when referring to the labour market, could also suggest that the slack in this market could be lower than originally anticipated and thus be a supportive factor for FX pass-through seen lately. In addition, the long-lasting nature of the depreciation trend (duration and intensity) could have been factors that boosted inflation performance as this trend was seen as a more permanent factor.
All in, the minutes leave us with the impression that the CB will be very careful before they add additional stimulus to the economy, at least for the time being given the ongoing inflation performance.