LatAm Daily Update

Mexico (=)

External trade numbers should continue to be optimistic for Mexico. The vast majority of Mexican exports are manufactured products in essence and the place of oil and mining exports has steadily declined in past decades. As such, Mexico is now perceived as a manufacturing economy that continues to specialise in auto assembly within NAFTA. Today’s trade numbers should point to exports still being in good shape as the pull from the US economy continues to translate into steady demand for Mexican exports. Import growth, in general terms, continues to be moderate as consumption has been evolving slowly in recent months and has been a laggard (along with gross fixed investment) in the demand side of the equation.

Brazil (-)

In Brazil, inflation dynamics continue to be one of the main concerns for markets. The June central bank inflation report depicted a complicated picture, as now forecasts for inflation for the end of 2015 stand as high as 9%. Market expectations continue to adjust to this trend as now analysts in their most recent survey (CB Focus) see inflation at 8.97%. in order to make things worse, markets (including us) still see additional pressure on the BRL in the remainder of the year, going to levels as high as USD-BRL 3.40 in coming months and, needless to say, represents a risk for tradable items in the form of pass-through. In this sense, watching June’s inflation on 8 July will be an important item for markets as the next steps in the tightening cycle should be decided for the next COPOM meeting coming at the end of July where we see now a 50bp rate hike to 14.25%