• Federal Reserve Chair Jerome Powell said Tuesday that if the U.S. job market further strengthens in the coming months or inflation readings accelerate, the Fed might have to raise its benchmark interest rate higher than it now projects.
• Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, nearly double December’s gain. The unemployment rate fell to its lowest level in 53 years, 3.4%.
• Though price pressures are easing and Powell said he envisions a “significant” decline in inflation this year, he cautioned that so far the central bank is seeing only “the very early stages of disinflation. It has a long way to go.”
• Even as the Fed has raised rates dramatically — by 4.5 percentage points, to a range of 4.5% to 4.75%, the fastest increase in four decades — the job market has remained surprisingly resilient. In addition, inflation, though still high, slowed to a year-over-year rate of 6.5% in December from 9.1% in June.
• The slowdown in inflation, even while the economy has stayed healthy, has raised hopes in financial markets that the Fed might be able to achieve its goal without having to raise borrowing rates so high as to cause a steep recession.
• But Powell brushed aside that notion Tuesday. “There’s been an expectation that it’ll go away quickly and painlessly,” Powell said. “I don’t think that’s at all guaranteed.” Instead, he warned that in his estimation, “it will take some time, and we’ll have to do more rate increases and then we’ll have to look around and see if we’ve done enough.”

(Source: AP News)

• Bank of Canada Governor Tiff Macklem on Tuesday said that no further rate hikes will be needed if, as expected, the economy stalls and inflation comes down.
• The central bank over the last 11 months has lifted rates at a record pace to 4.5% to tame inflation, which was 6.3% in December, still well above the bank's 2% target. Last month, it said it would hold off on further moves to let the effects of past increases sink in.
• "If new data are broadly in line with our forecast and inflation comes down as predicted, then we won't need to raise rates further," Macklem said in a speech to financial analysts in Quebec City. "Inflation is turning the corner. Monetary policy is working," Macklem said, adding that economic growth would be "close to zero" through the third quarter of this year.
• On Monday, a median of market participants surveyed by the central bank forecast that borrowing costs would come down by half a percentage point by the end of this year, and would fall further next year. When asked by reporters about the survey, Macklem reiterated that it was "really far too early to be thinking about cutting rates. ... We are pausing interest rate hikes to assess whether we've raised interest rates enough." "We need to pause rate hikes before we slow the economy and inflation too much," he said in his speech.

(Source: Reuters)

• Fitch Solutions expects real GDP growth in Jamaica will slow to 2.8% in 2023, from an estimated 3.9% in 2022, due to a slowdown in key tourist markets, elevated inflation, and less favourable base effects.
• Despite slower growth than the previous year, Fitch expects private consumption to remain robust in 2023 as employment and the tourism sector continue to recover from the pandemic.
• After keeping its policy interest rate fixed at 7.00% at its meeting in December 2022, the agency expects that the Bank of Jamaica will keep the policy rate steady in H123 before cutting it in the second half of the year to 6.50%. It is expected that the Bank will not hike further in 2023 as inflation has shown signs of moderating in Q322, and the pace of US Federal Reserve hiking has slowed.
• Fitch also kept Jamaica's Short-Term Political Risk Index score at 72.7 out of 100. This is because a high degree of policy continuity is anticipated, given the ruling Jamaican Labour Party's majorities in the Senate and House of Representatives until 2025.
• The risks remain to the downside, as slower US growth than expected and high crime rates could weigh more heavily on the travel sector. The outlook for monetary policy is for generally higher interest rates in 2023. Furthermore, limits on government spending amid a sharp rise in the cost of living and a high incidence of violent crime will pose risks to social stability.

(Source: Fitch Solutions)

• iCreate Limited has announced that the Company has signed an Agreement to acquire the shares of Branding & Trade Marketing company, Ideas Execution Limited. The acquisition fits within the company’s Merger and Acquisition strategy toward building out its vision as a leader within the creative and digital economies in Jamaica and the wider Caribbean region.
• iCreate’s CEO Tyrone Wilson, noted that “This partnership will see iCreate owning 100% of Ideas Execution and Founder Kevin Frith, becoming a top 10 shareholder in iCreate and a strategic investor”. This acquisition comes on the heels of the Company’s successful closing of Digital Outdoor Billboard Company, Visual Vibe.com Limited.
• Ideas Execution is a leading commercial service provider and business development agency in Jamaica. Ideas Execution, Campari and Wray and Nephew have partnered to execute over 500 branding projects and distributed products valued at over $1 billion in Jamaica since 2013. It has also partnered with a number of clients such as GraceKennedy Group, Seprod, and Lucozade to execute over 100 branding projects.
• While training remains the core of iCreate’s business, the company is responding to the need of diversifying its business in a way that creates revenue synergies and diversifies its income stream to ultimately improve its financial performance.

(Source: JSE)

• Fitch Solutions maintains its view that social stability in the Dominican Republic will improve in the first half of 2023. Despite their expectations that real GDP growth will slow from an estimated 5.0% in 2022 to 4.2% in 2023, resilient growth in the market’s tourism sector, which employs 17.0% of the labour force, will constrain the increase in average annual unemployment to 6.1% in 2023, from an estimated 5.3% in 2022.
• Additionally, Fitch expects headline inflation to moderate to an average of 6.5% in 2023, from 8.8% in 2022, as elevated interest rates and falling private consumption weakens pressures on price growth.
• Easing inflation and a relatively strong labour market will reduce the likelihood of public unrest and protests. Notably, threats of strikes and demonstrations by public and private sector unions, specifically from the nurses’ and transportation workers’ unions, have wound down from a spike in September through November.
• Given this, Fitch has revised up the Short-Term Political Risk Index score for the Dominican Republic from 71.3 out of 100, to 75.2, based on improvements to the country’s social stability and security/external threats components.

(Source: Fitch Solutions)

• Mexico is gearing up to build several manufacturing hubs for electric vehicles across the country, and is in talks with some of the world's top carmakers Foreign Minister, Marcelo Ebrard told Reuters.
• The shocks of the pandemic and two years of supply chain chaos are colliding with a once-in-a-century shift of the industry's fundamental technology as combustion vehicles give way to electric ones.
• "The Mexican auto industry, in comparison to the United States, has so many advantages," Ebrard said, pointing to its geography, existing infrastructure, and expertise advantages.
• His comments come as Tesla is said to be looking to build a plant in Mexico and BMW is investing 800 million euros ($866 million) in the central Mexican state of San Luis Potosi to produce high-voltage batteries and fully electric cars.
• Mexico is keen to capitalize on the global shift to electric vehicles. Ebrard said Mexico was focused on ensuring it had the right conditions to persuade foreign companies to invest.
• In addition to electric vehicles, Ebrard said he was also keen to attract more semiconductor and battery businesses - and build out transport infrastructure in the port of Coatzacoalcos, in the Gulf of Mexico.
• This development has the ability to provide increased employment for Mexico and boost economic output in coming years especially as the country seeks to recover from the blows of COVID-19.

(Source: Reuters)

• Europe’s ban on Russia’s diesel arrived painlessly on Sunday. Although the EU cut off its biggest supplier, diesel futures prices in the bloc fell 1.6% on Monday, amounting to a 20% loss over the past two weeks as demand in the region has waned, and efforts by countries to stockpile ahead of the ban have started to pay off.
• “The expectation was that, when the ban came in, diesel supply into Europe would tighten but, actually, that’s currently not materializing,” Mark Williams, a research director at consultancy Wood Mackenzie, told CNN.
• The diesel ban comes two months after the bloc placed an embargo on seaborne crude oil imports from Russia, as part of a package of sanctions against Moscow for its invasion of Ukraine. Russia accounted for 29% of the region’s total diesel imports last year, data from Rystad Energy shows.
• It may take a few months for the full impact of the ban to be felt as Europe starts to import more diesel from suppliers further afield, incurring higher shipping costs. The bloc is already importing significantly higher volumes of diesel from the United States, the Middle East and parts of Asia, according to Williams at Wood Mackenzie.
• Even so, those imports will not be enough to “offset the loss of Russian barrels into Europe,” once Europe whittles down its stockpile, he said, adding that prices relative to other importing regions could start to rise from the third quarter this year.

(Source: CNN)

• The U.S. military on Saturday shot down a suspected Chinese spy balloon off the Carolina coast after it traversed sensitive military sites across North America. China insisted the flyover was an accident involving a civilian aircraft and threatened repercussions.
• China responded that it reserved the right to “take further actions” and criticized the U.S. for “an obvious overreaction and a serious violation of international practice.” In its statement Sunday, China’s Ministry of Foreign Affairs said that, “China will resolutely uphold the relevant company’s legitimate rights and interests, and at the same time reserve the right to take further actions in response.”
• China has claimed that the balloon was merely a weather research “airship” that had been blown off course. The Pentagon rejected the explanation — as well as China’s contention that it was not being used for surveillance and had only limited navigational ability.
• The presence of the balloon in the skies above the U.S. this week dealt a severe blow to already strained U.S.-Chinese relations that have been in a downward spiral for years. It prompted Secretary of State Antony Blinken to abruptly cancel a high-stakes Beijing trip aimed at easing tensions.

(Source: AP News)

• Fitch Solutions expects that falling inflation and unemployment will keep the threat of popular discontent low in the first half of 2023.
• As estimated, headline inflation has started to come down in December to 9.3% y-o-y after the brief 10.3% uptick seen in November. It is expected that inflation will continue moderating through 2023, averaging 7.1 y-o-y, from 9.7% in 2022, supporting social stability.
• Further, a recovering tourism industry will continue to support employment levels. It is anticipated that the labour market will remain tight through H1 2023 before moderating in the latter half of the year as the global slowdown takes hold and affects Jamaica’s key tourism markets like the US. The H223 increase in unemployment underpins the agency’s forecast of average unemployment of 6.5% in 2023, modestly up from an average of 6.2% in 2022.
• Fitch has kept its Short-Term Political Risk Index (STPRI) at 72.7 out of 100, as inflation has already started coming down, supporting social stability. The ‘policy continuity’ component remains the highest at 85.0 as the JPL holds a majority in the Jamaican Parliament there are few threats to the government's policy agenda before the next general election, which is not required until 2025.
• Furthermore, although there was an uptick in violent crime and the number of murders in 2022, the government’s clampdown on violent crime has driven a decline in murders in January 2023. It is anticipated that the government will continue to take steps to combat crime in the months ahead, supporting the security/external threats component, which remains at 70.0.

(Source: Fitch Solutions)

• Peru's consumer prices rose less than expected in January despite the impact of growing political tensions, but the 12-month rate ticked up as the Andean nation battles the highest inflation in a quarter of a century, with fresh rate hikes still on the table.
• Peru’s government data showed on Wednesday, February 1, 2023, that consumer prices in the Lima metropolitan region, seen as the national benchmark, were up 0.23% in the first month of the year, well below the median forecast of 0.43% in a Reuters poll of economists.
• The recorded consumer prices were the lowest monthly increase since January of last year, slowing from the 0.79% rise seen in the previous month, although not enough to prevent annual inflation from hitting its highest since July.
• Data from statistics agency Instituto Nacional de Estadística e Informática (INEI) showed that consumer prices rose 8.66% in the 12 months through January, remaining near a quarter-century peak reached last year, though below a projection made by Economy Minister Alex Contreras last month (the minister estimated that annual inflation could close in January between 8.8% and 8.9% depending on how communications were restored after protests and road blockades pushed up food prices).
• The latest monthly inflation increase was mainly due to higher food and non-alcoholic beverage costs and rising hotel and restaurant prices, INEI said in a report. Decreasing transportation costs partially offset those increases.

(Source: Reuters)