• Most major brokerages do not expect a sustained drag on U.S. financial markets following Fitch's move to strip the country of its top credit rating, noting that the economy is stronger now than in 2011 when S&P Global downgraded U.S. sovereign debt.
• Stock index futures fell, with Nasdaq futures down 0.7%, while Treasury yields slid by 3 basis points. The dollar climbed 0.2%, after slipping broadly in the wake of the downgrade.
• Fitch Ratings on Tuesday cut its rating on U.S. long-term foreign-currency debt by one notch to 'AA+', citing fiscal deterioration over the next three years and repeated debt ceiling negotiations that threaten the government's ability to pay its bills.
• "Investors have lived through the S&P downgrade in 2011 and remember coming away unscathed. Another might be that people have gotten used to an elevated level of deficit spending," said Steven Zeng, strategist at Deutsche Bank. "We see the market impact from the downgrade news as ultimately limited, and Friday's jobs report could trump the downgrade news as monetary policy is still the dominant driver for yields."
• Data released last week showed the U.S. economy grew faster than expected in the second quarter as a resilient labour market supported consumer spending, with markets now pricing in a soft-landing scenario for the economy despite rapid interest rate hikes by the Federal Reserve.
• J.P.Morgan also noted that the spending cuts that ended the debt ceiling crisis of 2011 reduced federal spending by 0.7% of Gross Domestic Product (GDP) the following year, while the deal signed into law earlier this year is expected to lower federal spending by less than 0.2% of GDP next year.
• Markets took comfort when Fitch did not adjust U.S. "country ceiling", which it affirmed at AAA, showing strength in the ability of the corporate sector to convert local currency into a foreign currency for debt repayments.
• Moody's still holds a 'Aaa' rating on U.S. government debt. In a review in July, it cited economic strength, "extraordinary" funding capacity, and "central roles of the U.S. dollar and the U.S. Treasury bond market in the global financial system."

(Source: Reuters)

• British factory output contracted in July at the fastest pace in seven months, hit by higher interest rates and fewer new orders, despite weakening price pressures, a survey showed on Tuesday.
• The S&P Global/CIPS UK manufacturing Purchasing Managers' Index (PMI) fell to 45.3 in July from 46.5 in June, the lowest reading this year and the joint-weakest since May 2020, but above the 45.0 estimate in provisional PMI data.
• July's reading marked the 12th month in a row the PMI has been below 50. A reading above 50 signals growth in activity. The most recent official data showed factory output fell 1.2% in the year to the end of May.
• Rob Dobson, a director at S&P Global Market Intelligence, said the manufacturing downturn deepened in July, compounded by higher interest rates, customers with too much stock and weaker overseas demand. However, more than half of manufacturers expect output to rise over the coming 12 months.
• Demand continued to slow in July, with new domestic orders falling for the fourth month running and at the quickest rate since December. Overseas orders contracted at the steepest pace since November.
• Costs paid by manufacturers for materials and energy declined for the third consecutive month, while prices charged by factories were almost unchanged from June.
• The Bank of England, which is expected to deliver its 14th interest rate hike on Thursday, is closely monitoring indicators of price pressures as it judges how many more rate hikes are needed to control British inflation, which was 7.9% in June, the highest among major advanced economies.
• S&P Global's measure of future production improved slightly from the six-month low it hit in June, and employment contracted for the 10th month in a row.
• A final reading for the much larger services sector is due on Thursday.

(Source: Reuters)

• For June 2023, output prices for producers in the Mining and Quarrying industry increased by 1.2% while prices in the Manufacturing industry increased by 0.2% as indicated by data released by the Statistical Institute of Jamaica (STATIN).
• The increase in the index for the Mining and Quarrying industry in June was attributed to a rise in the index for the heavier-weighted major group ‘Bauxite Mining & Alumina Processing’ of 1.2%. The index for the other major group, ‘Other Mining & Quarrying’, moved up by 0.3%. A depreciation of the Jamaican dollar vis-à-vis the United States of America dollar also aided in the increase in the Index.
• The main contributors to the increase in the Manufacturing industry were the major groups, ‘Refined Petroleum Products’ (0.9%) and ‘Paper and Paper Products’, which increased by 2.0%. These increases were driven by higher petroleum commodities and higher production costs, respectively. Tempering the upward movement of the industry was a decline of 0.1% in the index for the major group ‘Food, Beverages & Tobacco’ and ‘Chemicals and Chemical Products’ down by 0.5%. The decline in the former group was due to a decline in the index for the group ‘Manufacture of Grain Mill Products, Starches and Starch Products’, a result of lower prices for wheat on the international market, while the fall in the index of ‘Chemicals and Chemical Products’ was driven by a reduction in freight and packaging costs.
• For the period June 2022 - June 2023, the index for the Mining & Quarrying industry decreased by 4.6% mainly due to a 4.9% fall in the index for the major group 'Bauxite & Alumina Processing’. For the same period, the index for the Manufacturing industry decreased by 3.3% mainly as a result of a decline of 26.8% in the index for the ‘Refined Petroleum Products’ major group. However, the decline in the index for the industry was moderated by an increase of 3.0% in the index for the heaviest-weighted major group ‘Food, Beverages & Tobacco ‘
• The Producer Price Index (PPI) is a significant economic indicator that tracks the average fluctuation in selling prices that domestic producers of goods and services experience over time. There was a minor dip in the PPI in June, however, the decision by OPEC+ to curtail oil supply could potentially escalate producer prices. This is due to the fact that a reduction in oil supply could drive up costs related to transportation and electricity. However, the supply cut has failed to significantly influence oil prices thus far.
• The recent development of Russia backing out of the grain deal could indeed have implications for food prices, and subsequently, the PPI. If the withdrawal from the deal leads to a shortage in grain supply, it could drive up the cost of grain-based products. This could result in an increase in the index for the major group 'Food, Beverages & Tobacco', thereby influencing the overall PPI. However, the extent of this impact would depend on the severity of the grain shortage and the responsiveness of the market to these changes.

(Source: STATIN)

• The Dominican Republic's Ministry of Economy, Planning, and Development has released the “Macroeconomic Situation Report: Situation Monitoring” for June 2023. The report reveals that the Monthly Indicator of Economic Activity (IMAE) experienced a year-on-year growth of 2.4% in May, surpassing the growth rates recorded in the first four months of the year. The IMAE's cumulative growth for the initial five months of 2023 stood at 1.4%.
• This positive economic performance is attributed to the successful implementation of coordinated expansionary monetary and fiscal measures, bolstering the country’s robust macroeconomic fundamentals.
• As for growth projections, the real GDP is expected to grow by 4.0% in 2023, and economic agents forecast a growth rate of approximately 5.0% for 2024, indicating a promising outlook for the Dominican economy.
• In terms of inflation, the report states that it was within the target range (around 4.0% - the mid-point of the target range) established in the monetary program for June, with a year-on-year variation of 4.00%. This rate is the lowest recorded since July 2020. Core inflation, which excludes volatile items, registered an interannual variation of 5.33%.
• Since May, the Central Bank has embarked on a monetary easing process. Analysts predict a continued reduction in the policy rate on a gradual basis, with a cumulative cut of 75bps expected by the end of the year. Further reductions in 2024 will depend on the overall inflation dynamics, particularly the impact of the recent surge in food commodity prices on domestic inflation.
• The report also highlights the groups that contributed to attenuating the variation in the price index for June, particularly in the Housing and Transportation categories, which experienced negative variations and incidences in the overall inflation rate.

(Source: Dominican Today)

• Bahamian insurers have warned they, and thousands of businesses and homeowners will face “tremendous economic hardship” if 35 per cent of reinsurance capacity is lost by The Bahamas failing to escape Europe’s tax blacklist.
• Major property and casualty underwriters told Tribune Business that The Bahamas is running out of time to exit the European Union’s (EU) non-cooperative list, and in effect has only one shot at achieving such an outcome through this October’s review, if it is to secure continued German reinsurance support that is “critical” to maintaining coverage for key real estate, auto and other assets.
• Anton Saunders, RoyalStar Assurance’s managing director, explained that reinsurers such as Munich Re will be prevented by German law from receiving tax relief or deductions on hurricane-related claims payouts to The Bahamas if this country still remains on the 27-nation EU’s blacklist after the October review.
• Given that such payouts will likely be worth hundreds of millions of dollars if a Dorian-strength storm strikes a major Bahamian island, the loss of such tax relief might deter German reinsurers from continuing to support local carriers such as RoyalStar by underwriting the bulk of this nation’s risks.
• Such a scenario, if it happens, would occur at the worst possible time given that reinsurance capacity and willingness to underwrite risks in the disaster-prone Caribbean is at a near 30-year low.
• Premium prices would be sent skyrocketing even further if Bahamian insurers lose German reinsurance support if the Bahamas fails to exit the EU’s blacklist. Timothy Ingraham, Summit Insurance Company’s managing director, noted that the loss of such backing would likely force all local property and casualty underwriters to halt taking on any new business.
• Both Prime Minister Philip Davis KC and Ryan Pinder KC, the attorney general, have in recent weeks blasted the EU for subjecting the Bahamas to demands it refuses to impose on its own members even though the likes of Luxembourg are viewed by many as far greater offenders when it comes to tax transparency.

(Source: The Tribune) 

• Global growth is projected to improve from an estimated 3.5 per cent in 2022 to 3.0 per cent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards.
• The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 per cent in 2022 to 6.8 per cent in 2023 and 5.2 per cent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward.
• The recent resolution of the US debt ceiling standoff and, strong action by authorities to contain turbulence in US and Swiss banking earlier this year, these occurrences have reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside.
• Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient.
• In most economies, the priority remains to achieve sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.

(Source: IMF)

• The U.S. economy grew faster than expected in the second quarter as a resilient labour market supported consumer spending, while businesses boosted investment in equipment and built more factories, potentially keeping a much-feared recession at bay. The Fed on Wednesday raised its policy rate by 25 basis points to the 5.25%-5.50% range.
• Despite the broad-based acceleration in growth reported by the Commerce Department on Thursday, inflation subsided considerably last quarter, with one of the key measures tracked by the Federal Reserve for its 2% target posting its slowest increase in more than two years.
• Economists, some of whom have been forecasting a recession since 2022, believed the U.S. central bank's fastest interest rate hiking cycle since the 1980s was drawing to a close, though strong domestic demand could see it keeping borrowing costs higher and for longer.
• "Despite the Fed's campaign to slow growth and snuff out inflation, no recession is in sight," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. "Stop raising rates for now."
• Gross domestic product increased at a 2.4% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 2.0% pace in the January-March quarter. Economists polled by Reuters had forecast GDP would rise at a 1.8% rate in the April-June period.
• The government's measure of inflation in the economy, the price index for gross domestic purchases, rose at a 1.9% rate, the slowest in three years. This followed a 3.8% pace increase in the first quarter.
• Even more encouraging, the personal consumption expenditures price index (PCE) excluding food and energy advanced at a 3.8% rate. That was the smallest gain since the first quarter of 2021 and was a slowdown from the 4.9% pace logged in the January-March quarter. The Fed watches the PCE price indexes for monetary policy.
• Outside housing and manufacturing, the economy has largely weathered the 525 basis points in rate hikes from the Fed since March 2022. Most economists are now confident the "soft landing" scenario - in which inflation falls, unemployment remains relatively low and a recession is avoided - is feasible.

(Source: Reuters)

• Tropical Battery Company announced the incorporation of its newly formed subsidiary, Tropical Battery USA earlier this week. This strategic move signifies TROPICAL’s ambitious expansion plans into North American markets.
• Tropical Battery USA, LLC will serve as the key platform for the company’s foray into online marketplaces, starting with Amazon. Leveraging Amazon’s extensive reach, TROPICAL aims to introduce its top-quality products to millions of consumers across the United States, Canada, and Mexico.
• With the establishment of Tropical Battery USA, LLC, the company is positioning itself to harness the vast potential of online marketplaces like Amazon. Its primary objective remains the same, to provide consumers with high-quality products they can trust.
• This move reflects TROPICAL’s vision to continually adapt, innovate, and expand in response to global market trends and demand. Its recent expansion into the Dominican Republic through the acquisition of Kaya Energy Group is an example of such an expansion. The company anticipates a boost in sales and brand awareness in these key regions as it taps into Amazon’s infrastructure.

(Source: JSE)

• Jamaican Teas has entered into an agreement to acquire a property in Temple Hall, St. Andrew.
• The property comprises some 60,000 square feet of factory buildings on about 3 acres of land. Completion of this agreement is expected in or before November 2023.
• This property will be used to house its manufacturing facilities now located at Bell Road and Montgomery Avenue, St. Andrew. Additionally, the company plans to start relocating to the Temple Hall facility by 2023.
• Though the new facility is relatively far, the company is optimistic about the future of the business stating that the additional travel expense will be offset by the savings gained from the consolidation of the two facilities.
• As it now stands, the company is paying double the amount for electricity, security, management and logistics for goods across locations. Though management has not run an estimate on the total expected savings, it is anticipated that the savings from just rent and maintenance costs will have a significant difference on its bottom line.

(Source: JSE)

• Barbados faces the possibility of incurring penalties and a blow to its credibility should it not meet targets associated with its recent debt-for-nature swap arrangement.
• This warning has come from Jennifer Doherty-Bigara, Senior Climate Change Specialist with the Inter-American Development Bank (IDB) which is one of the policy-based guarantors behind the US$150Mn blue loan debt-for-nature arrangement which was finalised last September.
• The debt conversion deal allowed Barbados to buy back a portion of its US$531Mn bonds due in 2029 and 2043 (Eurobonds and Series E bonds) at a lower interest rate. This comes with repayment guarantees of up to US$100Mn from the IDB and US$50Mn from The Nature Conservancy.
• Doherty-Bigara said while such deals usually sound good at the point of signing, it is what happens over the lifetime of the deal that matters. Currently, Barbados has committed to a couple of milestones that are the framework behind these transactions. While ministries of finance are more concerned about building sustainability around a debt management strategy, the ministries of environment are often more interested in attaining climate goals. However, it is important for all authorities to understand how to align the needs of everyone to ensure the commitments and requirements of deals are met.
• Doherty-Bigara noted that, “The credibility of these transactions is set over time. If Barbados starts missing the different commitments, there will be penalties, but also the loss of credibility. Barbados may want to go back to the market with similar financial instruments but if they start lacking with the current instruments they use they won’t be able to find that credibility back.” 
• It is therefore critical that the island’s credibility is protected in the current deal, especially if there are plans to attempt a similar deal in the future. Currently, the IDB is working with the Coastal Zone Management Unit on the marine spatial planning process which was the first target for Barbados to achieve during the first year of the transaction and has promised to continue working with the Ministry of Environment to build institutional capacity to ensure effective collection and verification of data, monitoring and reporting.

(Source: Barbados Today)