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Europe’s ups and downs Published: 29 August 2019

  • Get ready for more turbulence in the pound as the risk of a chaotic Brexit increase.  A measure of expected swings over the next three months surged to near the highest this year and the pound continued to fall after it took a beating on Wednesday’s blockbuster Brexit news.
  • Watch for the currency to react to political headlines as lawmakers trying to block no-deal spar with Prime Minister Boris Johnson over his plan to suspend Parliament. Things feel a bit more harmonious in Italy, where bonds surged and equities outperformed as the country’s president tapped Giuseppe Conte to form a new government, excluding right-wing League leader Matteo Salvini from power for now.
  • That might sound familiar: for the last 18 months, Conte has led an unstable coalition that collapsed in chaos earlier in August. Now he’s got until next week to form a coalition with support from rival parties the Five Star Movement and the Democratic Party in order to avert the possibility of fresh elections which could put Salvini in power.

(Source: Bloomberg)

BOJ Cuts Policy Rate Again Published: 28 August 2019

  • On August 27, 2019, the Bank of Jamaica announced that it will be lowering the policy interest rate (the rate offered on overnight placements with Bank of Jamaica) by 25 basis points to 0.50%, effective Wednesday, 28 August 2019.
  • Although BOJ anticipates that inflation will average 4.3% over the next 8 quarters, it has decided to cut the rate because of the likelihood that inflation will fall below the lower limit of the 4.0%-6.0% target range at various points over the period if there is no policy response.
  • The Central Bank’s inflation forecast is also influenced by the continued impact of low domestic demand conditions relative to the economy’s capacity; slower growth among Jamaica’s main trading partners; and declines in international commodity prices. It also accounts for the impact of imminent changes in the fuel mix in the domestic energy sector on electricity rates.
  • BOJ’s decision to cut the rate is intended to stimulate a faster expansion in private sector credit, which should lead to higher economic activity, consistent with the inflation target. This action will support inflation returning more quickly to the center of the target.

(Source: BOJ)

Blue Power Profit Dips Published: 28 August 2019

  • For the three months concluded July 2019, Blue Power Group Limited reported a 25.9% decline in profits to $50.72Mn (EPS: $0.08).
  • The overall performance in net profit for the period was impacted significantly by a 58.3% (or $13.42Mn) decrease in net financial income which was as a result of reduced foreign exchange earnings.  Moreover, there was 3.8% (or $12.51Mn) increase in the cost of revenue which outpaced the 1.7% ($7.47Mn) growth in sales and added to the contraction in the company’s bottom line.
  • The stock has risen 88.1% since the start of the calendar year and closed yesterday’s trading session at $9.48. The stock currently trades at a P/E of 43x earnings which is significantly above the Junior Market Manufacturing sector average of 27x.

 (Source: Blue Power Financials)

Drivers of Hyperinflation Still In Play In Venezuela, Despite Short-Term Improvement Published: 28 August 2019

  • Fitch does not expect a stabilization of inflation or the bolívar Soberano (VES) until a new government is in power in Venezuela.
  • However, the research agency revised down its forecast for inflation to average 143,106.5% y-o-y in 2019, and for the exchange rate to average VES16,197.6/USD, as the lifting of currency controls and implementation of higher reserve requirements has eased some upward pressures.
  • Both inflation and the exchange rate would improve significantly in 2020 under the base case of a new government coming to power, though there is a substantial risk that the PSUV-led government will remain through that year.

(Source: Fitch)

El Salvador's Growth To Decelerate As US Slowdown Curbs Remittance Growth Published: 28 August 2019

  • Economic activity growth in El Salvador is expected to decelerate as remittance growth slows in line with a slowdown in the US.
  • Investment opportunities remain limited by security concerns, though the potential for Chinese investment is emerging.
  • Downside risks to El Salvador’s growth stem from the potential for a greater than expected slowdown in the US, as well as the impact of US policy toward Central America.

(Source: Fitch)

Boris Johnson to Suspend Parliament, Triggers Backlash: Brexit Update Published: 28 August 2019

  • The British pound fell as much as 1.1%, the most in a month, after the BBC reported that U.K. Prime Minister Boris Johnson will ask Queen Elizabeth II to suspend parliament from Sept. 12 until Oct. 14, a move which could severely hamper efforts by anti-Brexit lawmakers to block a no-deal exit from the European Union.
  • While suspending parliament, known as proroguing, is not unusual, using it to strategically frustrate opposition to the government is likely to cause an uproar.
  • The decision is expected to be confirmed by the Privy Council – a group of senior politicians who advise the Queen – later today.

(Source: Bloomberg)

Policy Certainty is Key to Safeguard Country Against Any Recession – PIOJ Head Published: 27 August 2019

  • Director-General of the Planning Institute of Jamaica (PIOJ), Dr. Wayne Henry, says policy certainty is among the measures which will be key in safeguarding the country against the possible emergence of another global economic recession.
  • “The intensity of any global recession is usually exacerbated by policy uncertainty. As such, policymakers have a critical responsibility to ensure that there is certainty surrounding policies related to external trade and macroeconomic fundamentals,” Dr. Henry said.
  • Key among these, he pointed out, are: continued strengthening of the macroeconomic environment; creating the appropriate social safety nets for the society’s most vulnerable citizens, and facilitating investments and trade policies focused on encouraging product and market diversification.
  • His comments come against the background of concerns about the possible emergence of a recession over the short to medium term, and its likely impact on Jamaica’s economy.

 (Source: JIS)

1834 Investments Off to Strong Start Published: 27 August 2019

  • 1843 Investments reported a 61.7% increase in unaudited net profit for the three months ended June 2019. Net profit for the quarter was $18.35Mn (EPS: 1.51¢) relative to $11.35Mn (EPS: 0.94¢) reported in 2018.
  • A 25.3% increase in revenues together with a 26.8% decline in administrative expenses were the main contributors to the improved performance.
  • The stock has fallen 13.8% since the start of the calendar year and closed yesterday’s trading session at $1.00. The stock currently trades at a P/E of 97x earnings which is significantly above the Main Market average of 21x.

(Source: 1834 Financials)

Market Crisis Undermines Argentina's Fiscal And External Accounts Published: 27 August 2019

  • A renewed crisis of market confidence in Argentina is generating significant risks to the country's fiscal and external accounts.
  • The expectation is that the fiscal deficit will widen over the coming quarters, as the government attempts to mitigate the impact of a significant depreciation of the peso and anticipated a spike in inflation.
  • Fitch also believes that Argentina's external accounts will be under tremendous pressure as investor concerns over policy direction and fiscal sustainability will severely restrict its access to capital markets.

(Source: Fitch)

Positive Outlook For Brazilian Gold Production Published: 27 August 2019

  • Fitch remains positive about Brazilian gold production growth through 2022, expecting it to grow at an average rate of 3.5% y-o-y, on the back of a solid project pipeline.
  • Brazil’s long-term gold mining production sector growth will be underpinned by the country’s significant gold reserves and a favorable gold price outlook, encouraging investment in the sector.
  • Jair Bolsonaro's administration’s proposal to expand permissible mining territories, coupled with its mining-friendly policy approach, present upside potential to the current forecast. Increased costs related to compliance with environmental regulations and attracting the necessary labor force will be hurdles for miners looking to invest.

(Source: Fitch)