• A risk-on mood fueling this year’s equities rally is likely to falter, with headwinds from bank turbulence, an oil shock, and slowing growth poised to send stocks back toward their 2022 lows, according to JPMorgan strategist Marko Kolanovic.
• “The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally, with European stocks trading near all-time highs and US stocks recovering recent losses,” Marko Kolanovic, JPMorgan strategist, wrote in a note to clients Monday. “We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months.”
• A drop in the VIX (Volatility Index) below 20, a level associated with less stressful periods, suggests investors believe the banking crisis is contained in the near term. However, Kolanovic characterizes the present market backdrop as “the calm before the storm.”
• One of Wall Streets biggest optimists through most of the market selloff last year, Kolanovic has since reversed his view, cutting his equity allocation in mid-December, January, and March due to a soft economic outlook this year.
• Stocks have remained resilient this year despite rising interest rates that have dented corporate profits, slowed growth, and triggered a series of bank collapses in the US and overseas. The benchmark S&P 500 rose 7% in the first quarter after dropping nearly 20% in 2022, while gains across technology stocks have pushed the Nasdaq 100 up 20% since the start of January and into a bull market.
• “It is worth noting the accordion-like nature of risk sentiment, where restrictive rates produced an issue for various carry trades, and the ensuing pullback in yields mitigated some of the stress,” Kolanovic wrote. “Although central banks are still communicating, there is ground to cover on fighting inflation and pushing back against the market’s assumption of cuts, so the original source of stress, rates higher for longer, can reenter the picture.”

(Source: Bloomberg)

• During the fourth quarter of 2022, the Jamaican economy grew by 3.8% relative to the fourth quarter of 2021. This resulted from growth in the Services and Goods Producing Industries of 3.6% and 4.7%, respectively, reflecting the continued recovery of the economy from the adverse effects of the COVID-19 pandemic.
• All industries within the Services Industries grew, except for the Producers of Government Services which fell by 0.8%. The top performers were Hotels & Restaurants (21.6%), Other Services (10.4%), and Transport, Storage & Communication (5.9%). The removal of COVID-19 restrictions significantly benefitted the services industries as the growth in Hotels & Restaurants was mainly influenced by a 36.5% increase in foreign national arrivals during the period.
• The increase in the Goods Producing Industries was largely due to higher output levels in Agriculture, Forestry & Fishing (5.9%), Manufacturing (5.4%), and Mining & Quarrying (99.0%). However, value added for the Construction industry declined by 4.8%. The Agriculture, Forestry & Fishing industries benefitted from favourable weather conditions while the resumption of operations at the JAMALCO plant impacted the performance of the Mining & Quarrying industry.
• Preliminary estimates from the PIOJ indicated that the Jamaican economy grew by 5.2% in the calendar year 2022. For FY2023/24 growth is projected to be between 1.0%–3.0% largely reflecting a faster-than-expected pace of recovery in the previous fiscal year leading to an earlier-than-anticipated normalisation of output and a return to the long-term trend of growth.

(Sources: STATIN & PIOJ)

• An additional US$70Mn of investment has been earmarked for the upgrading and modernisation of the Sangster International Airport (SIA) in Montego Bay, St. James. Prime Minister, the Most Hon. Andrew Holness, made the announcement after touring the ongoing runway extension and civil infrastructure project, being undertaken at the airport at a cost of US$70Mn.
• The Sangster International Airport runway extension project is slated for completion during the second quarter of 2023. The work entails extending the strip from 2,662 to 3,060 metres.
• “This is what I would call a strategic nation-building investment. This US$140Mn in total will transform the experience here. It will make Jamaica more attractive and make Jamaica more competitive with other countries in the region, which have also invested heavily in improving their infrastructure,” he said.
• Mr. Holness told journalists that the airport’s current physical infrastructure and mechanisms are “outdated”. As such, he said this “great investment” in the airport is intended to update the facilities and improve the capacity of its services for locals and foreigners.
• Approximately 70% of visitors to Jamaica come through the Sangster International Airport. That said these new and existing investments in the airport bode well for Jamaica’s tourism product as it will open up the country to other destinations, thereby increasing the prospect of more visitors and foreign earnings for the local economy.
• Mr. Holness indicated that additional investments are being made in advancing the technology platform for the immigration process where, soon, it will be a paperless system for a seamless experience, travelling through the airport.

(Source: JIS News)

• The Mexican economy could grow up to 3.0% both this year and next, boosted by increased manufacturing investment and cooling inflation, according to a copy of the government's latest budget forecasts.
• The Ministry estimates Latin America's second-biggest economy will expand between 2.2% and 3.0% this year, and between 1.6% and 3.0% in 2024, the document showed, as the country continues to claw back pandemic-led losses.
• For 2023, the "lower end of the range was adjusted upwards due to the good performance of the domestic economy," said the document containing preliminary forecasts for next year. Additionally, Mexico's inflation rate by the end of this year is seen slowing to 5.0%, and then to 4.0% by the end of 2024.
• As inflation climbed worldwide, central banks rushed to hike interest rates and slow the trend. Mexico's central bank raised rates 25 basis points to 11.25% last Thursday but hinted the hiking cycle could be nearing its end.
• Notably, Mexico is also primed to benefit from private investment fueled by "nearshoring," the trend of moving production to North America and away from Asia, the ministry said. Nearshoring could add up to 1.2 percentage points to GDP the ministry said, without specifying a time frame.
• In particular, the ministry anticipated a boost to foreign investment in manufacturing and said the automotive industry was a "natural candidate" to take advantage of nearshoring. Electric vehicle maker Tesla recently announced it would build a "gigafactory" in the northern border state of Nuevo Leon, which local officials have said could bring in up to $10Bn in investment and create 10,000 jobs.

(Source: Reuters)

• Fitch Solutions is expecting social stability in Trinidad and Tobago (T&T) to worsen in 2023, as inflation rises and crime rates surge. While T&T’s outlook on social stability is not the worst by regional standards, it will be facing headwinds in 2023.
• The government’s commitment to fiscal consolidation has led it to remove subsidies on key goods. These subsidies on food and fuel were in place since commodity and food prices spiked in early 2022.
• Consequently, inflation has risen dramatically, and if price pressures persist through 2023, ‘cost of living’ protests may become more commonplace in the country. Additionally, the government has not been successful in tapering the sharp rise in crime, seen since the end of the pandemic, which negatively affects Fitch’s ‘security’ component in its Short-Term Political Risk Index (STPRI).
• Given these reasons, Fitch Solutions have revised its STPRI score for Trinidad & Tobago from 65.0 to 64.3 out of 100.
• Despite a higher risk of protests, broad policy continuity is expected from Dr Keith Rowley’s government, as his People’s National Movement retains a comfortable majority in parliament until 2025.

(Source: Fitch Solutions)

• Global factory activity weakened in March as consumers feeling the pinch from rising living costs cut back, surveys showed on Monday, suggesting a deteriorating outlook will remain a drag on economic recoveries and keep policymakers on their toes.
• S. manufacturing activity slumped to the lowest level in nearly three years as new orders continued to contract, a survey by the Institute for Supply Management (ISM) showed. Its manufacturing PMI fell to 46.3 last month, the lowest reading since May 2020, from 47.7 in February. Economists polled by Reuters had forecast the index dipping to 47.5.
• It was the fifth straight month that the PMI remained below the 50 threshold, which indicates a contraction in manufacturing. However, so-called hard data have suggested that manufacturing, which accounts for 11.3% of the economy, continues to grow moderately.
• Rising borrowing costs as the Federal Reserve fights high inflation have cooled demand for goods, which are typically bought on credit. Demand could also come under further pressure following the recent failure of two U.S. regional banks and the takeover of Credit Suisse, which stressed the financial sector.
• "While an onshoring of supply networks and investment in domestic manufacturing capacity could provide support to factory activity, a further tightening in credit conditions may be a hurdle going forward," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

(Source: Reuters)

• An inflation gauge the Federal Reserve follows closely rose slightly less than anticipated in February, providing some hope that interest rate hikes are helping ease price increases.
• The personal consumption expenditures price index excluding food and energy increased 0.3% for the month, the Commerce Department reported Friday. That was below the 0.4% Dow Jones estimate and lower than the 0.5% January increase.
• On a 12-month basis, core PCE increased 4.6%, a slight deceleration from 4.7% in January. Including food and energy, headline PCE rose 0.3% monthly and 5% annually, compared with 0.6% and 5.3% in January. The softer-than-expected data came with monthly energy prices decreasing 0.4% while food prices rose 0.2%. Goods prices climbed 0.2% while services increased 0.3%.
• “The inflation trend looks promising for investors. Inflation will likely be below 4% by the end of the year, giving the Federal Reserve some leeway to cut rates by the end of the year if the economy falls into recession,” said Jeffrey Roach, chief economist at LPL Financial.

(Source: CNBC)

• For February 2023, output prices for producers in the Mining and Quarrying industry decreased negligibly, while for the Manufacturing industry, prices increased by 0.4% as indicated by the Statistical Institute of Jamaica (STATIN).
• The decline in the Mining and Quarrying industry index was mainly attributed to negligible decreases in the index for the major groups ‘Bauxite Mining & Alumina Processing’ and ‘Other Mining & Quarrying’. This is due primarily to a slight appreciation of the Jamaican dollar against the USD in February.
• An increase of 0.3% in the index for the highest weighted major group ‘Food Beverages & Tobacco’ contributed to the increase in the index for the Manufacturing industry. Other contributing major groups were, ‘Other Manufacturing n.e.c.’ 9.9% and ‘Refined Petroleum Products’ 0.3%.
• For the period February 2022 – February 2023, the Mining & Quarrying industry’s index fell by 14.7% while the point-to-point movement for the Manufacturing industry’s index increased by 6.6%. The fall in Mining & Quarrying industry’s index was a result of a 15.3% decline in the index group ‘Bauxite Mining & Alumina Processing’ as the price of Bauxite & Alumina on the international market declined. However, the movement in the Manufacturing Industry was primarily attributed to a 9.7% increase in the index for the major group ‘Food, Beverages & Tobacco but was tempered by a 3.1% decline in the index for the major group ‘Refined Petroleum Products’. The manufacturing industry is now reaping the benefits of falling prices after contending with increased prices for major inputs during the review period given the Russia-Ukraine war amongst other things.
• The PPI, which measures the average change over time in selling prices received by domestic producers of goods and services, has trended down over the second half of 2022. Despite a slight increase in the index in February, the fall in freight charges and fuel prices is expected to result in lower costs for local producers going forward and could translate into lower prices for consumers.

(Source: STATIN)

• Fitch Solutions have become far more downbeat about the prospects for Colombian President Gustavo Petro’s reform programme in 2023 due to a series of legislative failures and a deteriorating security situation in the past several months.
• March has been a month of negative political developments for the sovereign, including the non-support of the new political and health bill by the legislative body.
• Additionally, Peru's government announced the "definitive withdrawal" of its ambassador from Colombia amid diplomatic tensions between both countries. The decision responds to "repetitive interventionist and offensive comments" from Colombian President Gustavo Petro, Peru's foreign ministry said in a statement.
• Based on the dampening political outlook, Fitch revised its Short-Term Political Risk Index (STPRI) score from 62.9/100; to 61.7, reflecting lower scores for the ‘policy-making process’ and ‘security /external threats’ components.
• Despite the dampened outlook, Colombia still ranks above the average STPRI score for the six major markets for the region. Notably, Chile ranks first, above Colombia, with a headline score of 64.6, while Mexico’s in second place, scoring 62.9. These are followed by Brazil (51.5), Argentina (50.8), and Peru (43.8).

(Source: Fitch Solutions)

• Brazil's finance ministry unveiled on Thursday, March 30, a proposal for new fiscal rules to balance limits on spending growth with the government's vow to boost social programs and public investment, lifting local markets after months of uncertainty.
• The long-awaited proposal is key to easing fiscal concerns after leftist President Luiz Inacio Lula da Silva secured congressional approval to bypass a constitutional spending cap. His spending vows and criticism of the central bank have pushed up inflation expectations since he took office in January.
• Notably, the new fiscal framework targets a zero primary deficit in 2024, followed by a primary surplus equal to 0.5% of GDP in 2025 and 1% of GDP in 2026. The primary budget target would have a margin of plus or minus 0.25 percentage points.
• Additionally, the new rules would allow public spending to grow between 0.6% and 2.5% per year above inflation. Spending growth would also be limited to 70% of revenue growth in the prior 12 months.
• Brazil's benchmark stock index rose 1.5%, and its currency firmed slightly against the U.S. dollar to a nearly two-month high as analysts greeted the proposal with measured relief, highlighting questions about its details and execution.
• This year's primary deficit target, the first of the Lula administration, is 228.1 billion reais (US$44Nn). However, the finance ministry recently estimated that the shortfall will be 107.6 billion reais, equal to 1.0% of GDP, helped by a jump in expected tax revenue.

(Source: Reuters)