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Foreign Exchange Market Remains Relatively Stable Published: 22 November 2022

  • Jamaica’s foreign exchange market remains relatively stable, partly reflecting actions by the Central Bank in response to higher-than-targeted inflation. According to the BOJ Governor, the foreign exchange rate for the fiscal year 2022/23, to November 11, depreciated by 0.5%.
  • This was significantly slower than the 6.7% depreciation recorded over the corresponding period of 2021/22 he said while speaking during the BOJ’s semi-virtual quarterly media briefing on Friday (November 18).
  • The Central Bank, in this context, sold US$396.1Mn via its BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT) facility over the period. This was complemented by sales of US$442.7Mn to selected public enterprises, including the State oil refinery – PETROJAM.
  • “Notwithstanding these sales, the Bank net purchased from the market, over this period, US$521.6Mn. As of November 11, 2022, Jamaica’s gross international reserves remained substantial at approximately US$4.3Bn. The Bank projects that the gross reserves will continue to remain adequate in the medium-term,” the Governor further stated

(Source: JIS News)

Brazil Cuts 2023 GDP Growth Forecast As Global Economy Weakens Published: 22 November 2022

  • Brazil's Economy Ministry on Thursday cut its 2023 GDP growth forecast to 2.1%, from the 2.5% anticipated in September, due to a deterioration in the global economic outlook. Private economists in a Brazilian central bank weekly survey projected gross domestic product would grow 0.7% in Latin America's largest economy next year.
  • In a statement, the ministry's Secretariat for Economic Policy stressed that the global economy has weakened in the face of monetary tightening in the United States and other developed economies, which has hampered prospects for growth. "Our base scenario considers market estimates, whose projections indicate a slowdown in global activity, but do not point to a recession," it said.
  • At the same time, the ministry kept its 2022 GDP growth outlook at 2.7% on the basis of solid activity in the services sector and an improved labour market. That was in line with the market's 2.77% estimate.
  • The ministry decreased its 2022 inflation forecast to 5.85% from the 6.3% projected in September. For 2023, the official inflation projection now stands at 4.6%, up from the prior 4.5% forecast. This too is likely factored into the downward revision for 2023 as it erodes consumer spending capability.

(Source: Reuters)

Mid-November Inflation Will Shape Banxico's Next Decision Published: 22 November 2022

  • Fitch Solutions will be paying close attention to the mid-November inflation print from Mexico, which is forecasted to have a significant impact on the next policy rate decision by the Banco de México (Banxico).
  • October’s inflation data suggests that price growth in Mexico has peaked; it showed a deceleration from 8.7% y-o-y in September – itself flat with August – to 8.4%, in line with the view that inflation will begin to cool by the end of the year.
  • The Agency argued that Banxico would slow the pace of its rate hiking cycle from 75 bps to 50bps at its next meeting on December 15, due in part to cooling inflationary pressure. However, if inflation comes in line with consensus expectations at 8.3% in the first half of November, it would reinforce Fitch’s view that Banxico will moderate its hiking in December.
  • On the contrary, if inflation surprises to the upside, either at the headline or the core (8.4% in October), this would pose a risk to its view that the overnight policy rate will end the year at 10.50%, and that inflation will stand at 8.4% at end-2022.
  • Notably, the preliminary print showed the economy grew 4.2% y-o-y in Q3 2022, which led to the Agency revising its forecast for the year from 2.0% to 2.7%. While the finalised print may shift the Q3 2022 number slightly, the changes are typically minor, and should not affect the annual forecast.

(Source: Fitch Solutions)

Oil Prices Waffle On Conflicting OPEC+ Output Reports Published: 22 November 2022

  • Oil prices were down on Monday, but reversed some losses after hitting their lowest since early January on conflicting reports about whether Saudi Arabia and other OPEC oil producers are considering a half-million barrel daily output increase.
  • Brent crude futures for January fell $1.41, or 1.6%, to $86.21 a barrel by 12:16 p.m. EST (1716 GMT). U.S. West Texas Intermediate (WTI) crude futures for December were down $1.69, or 2.1%, at $78.39 ahead of the contract's expiry later on Monday.
  • Both benchmarks had plunged by more than $5 a barrel earlier in the session after the Wall Street Journal reported an increase of up to 500,000 barrels per day will be considered at the OPEC+ meeting on Dec. 4.
  • Oil pared some losses following a Saudi state news agency report that the kingdom was not discussing such a boost. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, recently cut production targets and de facto leader Saudi Arabia's energy minister was quoted this month as saying the group will remain cautious.
  • Releasing more oil amid weak Chinese fuel demand and U.S. dollar strength could move the market deeper into contango, encouraging more oil to go into storage and pushing prices still lower.

(Source: Reuters)

World Banks See The Global Economy Slowing More in 2023, With Likely U.S. Recession Published: 22 November 2022

  • The world's largest investment banks expect global economic growth to slow further in 2023 following a year roiled by war and soaring inflation that triggered one of the fastest monetary policy tightening cycles in recent times.
  • The U.S. Federal Reserve has increased interest rates by 375 basis points this year since rolling out its first hike in March. This has sparked worries about a recession, even as the central bank is expected to temper its pace of hikes.
  • Real GDP (annual Y/Y) forecasts for 2023:

Bank

Global

U.S.

China

Morgan Stanley

2.20%

0.50%

5%

Goldman Sachs

1.80%

1.1%

4.50%

Barclays

1.70%

-0.1%

3.80%

JPMorgan

-

1%

-

BNP Paribas*

2.3%

-0.10%

4.50%

UBS

2.1%

0.1%

4.5%

  • Morgan Stanley sees the Fed delivering its first rate cut by December 2023, taking the benchmark rate to 4.375% by the end of that year. Barclays sees the rate between 4.25% and 4.5% by the end of next year, following a rate cut.

(Source: Reuters)

Bank Of Jamaica Tightens Monetary Policy With Conditional Pause Published: 18 November 2022

  • The Bank of Jamaica (BOJ) has increased its policy rate by an additional 50bps to 7.00% effective November 18. While the key external drivers of headline inflation, such as grains and shipping prices, continued to trend downwards, the Bank has not yet seen the full pass-through to domestic food prices. This was evident in Jamaica’s inflation rate at October 2022 of 9.9% which was higher than the outturn at September 2022 of 9.3%.
  • The decision also factored in the fact that monetary tightening among Jamaica’s main trading partners continued at a fast pace. On 2 November 2022, the Federal Reserve Board (Fed) raised its interest rate target by 75 basis points (bps) and signalled further rate increases. This policy stance could cause capital outflows from Jamaica and a faster pace of exchange rate depreciation if domestic monetary policy is not aligned correctly.
  • However, after twelve months into its tightening cycle, the Bank judges that it is appropriate to pause further policy rate increases and to watch the pass-through effects on deposit and loan rates. However, the pause is conditional on the MPC seeing more pass-through of international commodity price reductions to domestic prices and on the Fed not exceeding their targeted rate increase for 2022(4.4%) and 2023 (4.6%).
  • The current policy rate is in line with forecast Fitch’s Solution’s forecast that the policy rate for Jamaica would be 7.00% by the end of 2022 and stay constant at that level for 2023. 

(Source: BOJ & NCBCM Research)

FESCO and FONTANA (FTNA) Shone for the Junior Market Distribution Sector Published: 18 November 2022

  • FESCO and FTNA have reported strong net profit for this earnings season. FESCO reported net profit growth of 189.3% to $281.08Mn for its six months ended September 30, 2022, while FTNA reported an increase of 43.3% to $87.58Mn for its first quarter ended September 30, 2022.
  • FESCO’s profitability was supported by the broader economic reopening, which positively affected the transportation sector and higher prices for its products. Additionally, the company continues to benefit from the opening of additional service stations. Meanwhile, seasonality trends such as back-to-school sales would have contributed positively to Fontana’s strong first quarter.
  • On another note, both FESCO and FTNA’s cost of sales would have increased by 209.7% and 21.8%, respectively; however, both companies’ margins would remain fairly unchanged. FESCO saw its gross profit margin remain at 3.0%, while FTNA’s declined slightly to 64.2% from 66.2%.
  • Going forward, both companies are expected to perform well in the coming quarters. FESCO will continue to invest in real assets and equipment to support the growth of its service station network and its promised entry into the LPG industry. Additionally, Fontana will benefit from seasonality trends, especially as we approach the Christmas season.
  • FESCO’s stock price has increased the most since the start of the year, with a price appreciation of 72.66%, while FTNA’s increased by 14.19%. At the current P/E multiplies, both stocks trade above the Junior Market Distribution Sector Average of 15.9x, with FESCO trading at 27.5x, and FTNA trading at 16.7x. 

(Sources: Company Financials & NCBCM Research)

Colombia's Economic Growth Slowed In Q3 Published: 18 November 2022

  • Colombia's economic growth is likely to have slowed in the third quarter of the year due to more moderate domestic consumption amid rising interest rates and rampant inflation. According to the median of 15 analysts' estimates, Latin America's fourth-largest economy expanded by 6.7% between July and September.
  • Despite the slowing, the median forecast was slightly higher than projections by the country's central bank, which estimated third-quarter economic growth at 6.4%. "Although the economy still shows symptoms of powerful aggregate demand, there is slowing as consumers become more cautious as inflation continues to put pressure on their wallets, and entrepreneurs assume higher financing costs," said Wilson Tovar, chief economist for brokerage Acciones y Valores.
  • Colombia's central bank has hiked its benchmark interest rate to 11%, the highest level in 21 years, in a bid to slow inflation. The Andean country saw 12-month inflation hit 12.22% in October, the highest level since 1999.
  • Median estimates suggest Colombia's economy could grow by 7.70% this year before slowing to 1.60% in 2023, as central banks raise rates around the world to cool inflation. The Central Bank is expected to continue hiking rates at least until the first quarter of 2023 and right up to levels close to 12.5% or 13% as there are no signs of inflation slowing in the economy.

(Source: Reuters)

Caribbean Export Signs Trade Mou Published: 18 November 2022

  • The Caribbean Export Development Agency (Caribbean Export) has signed a Memorandum of Understanding (MOU) with the World Trade Center Miami (WTCM) and Canning House agreeing on a framework to sustain trade and investment promotion efforts in the Caribbean.
  • This presents an opportunity to deepen the economic trade and investment relationships between the UK and Latin America. This means that Caribbean Investment Forum (CARIFORUM) businesses, workers, and producers will need to collaborate and work smarter to successfully compete globally and enter new markets for trade and the attraction of investment. 
  • Most significantly, Florida, for many reasons, including its logistic positioning, large Caribbean diaspora, is an important gateway for Caribbean investment and trade and home to the WTCM.
  • Further, president Ivan Barrios said that the Caribbean was very important to the South Florida community and that the signing of the MOU was timely given a new series of seminars being planned for the Caribbean titled 'How to export your products to the United States using Miami as platform'.
  • The Caribbean Investment Forum placed strategic focus on sectors such as the digital economy, renewable energy, agriculture technology (AgTech) and logistics and transportation; all sectors deemed critical for the sustainable development of Caribbean economies.

(Source: Trinidad Express Newspaper)

Fed’s Waller Says He’s Open To A Half-Point Rate Hike At December Meeting Published: 18 November 2022

  • Federal Reserve Governor Christopher Waller said Wednesday he’s open to reducing the level of interest rate increases soon, so long as the economic data cooperates.
  • The rate-setting Federal Open Market Committee is set to meet Dec. 13-14. Market expectations are running high that policymakers will approve another rate hike, but this time opting for a 0.5 percentage point, or 50 basis point, move. That would come after approving four consecutive 0.75 percentage point increases.
  • “Looking toward the FOMC’s December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike,” Waller said in prepared remarks for an event in Phoenix. “But I won’t be making a judgment about that until I see more data, including the next PCE inflation report and the next jobs report.” A basis point equals 0.01 percentage point.
  • Investors have grown optimistic that a lower-than-expected increase in October’s consumer price index reading is indicative that inflation is cooling. Headline CPI increased 0.4% for the month and 7.7% from a year ago, while the core reading excluding food and energy rose 0.3% and 6.3%, respectively. All the readings were lower than market estimates.

(Source: CNBC)