• Goldman Sachs has cut its probability forecast for a U.S. recession to 20% shortly after raising it, as fresh labour market data sparked a reassessment of market views on the economy.
• Economists at Goldman earlier this month raised their 12-month U.S. recession probability from 15% to 25% after the U.S. July jobs report showed nonfarm payrolls grew by a less-than-expected 114,000. That was down from the downwardly revised 179,000 of June and below the Dow Jones estimate of 185,000. 
• The report triggered widespread concerns about the U.S. economy and contributed to the sharp — but ultimately brief — stock market sell-off at the start of the month. It also triggered the “Sahm Rule,” a historical indicator showing that the initial phase of a recession begins when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low.
• Goldman initially cited this as a reason for hiking the probability of an economic downturn — but changed tack on Saturday, when it wrote in a note that it saw the odds down to 20% because data released since Aug. 2 showed “no sign of a recession.”
• That data included retail sales for July — which rose by 1%, versus an estimate of 0.3% — and weekly unemployment benefit claims, which were lower than expected. A healthy jobs report on Sept. 6 would “probably” spur Goldman to cut its recession probability back to 15%, where it had been for nearly a year before August, the bank’s economists said.
• Unless another downside surprise in the jobs report takes place, Goldman will become more confident in its forecast for a 25-basis point rate cut at the Federal Reserve’s September meeting, rather than a steeper 50-basis point trim.

(Source: CNBC)

• Canada's annual inflation rate cooled to a 40-month low of 2.5% in July, matching forecasts. Core inflation measures eased as well, data showed on Tuesday, keeping the Bank of Canada (BOC) on track to cut interest rates again in September.
• Analysts polled by Reuters had forecast inflation to cool to 2.5% from 2.7% in June. The consumer price index also aligned with forecasts, up 0.4% on a monthly basis according to Statistics Canada data.
• Money markets expect another 25-basis point cut at the BOC’s next rate announcement on Sept. 4 and are nearly pricing in a total of three more cuts this year. Most economists are also factoring in a similar rate reduction trajectory for the rest of the year, which would bring down the benchmark rate to 3.75% by year-end.
• "With inflationary pressures fading away but concerns about the weakening labour market growing, we continue to forecast three further 25bp cuts by the Bank of Canada at the remaining meetings this year," said Andrew Grantham, senior economist at CIBC Capital Markets.
• The central bank trimmed its policy rate at its last two meetings, bringing it down to 4.5% from 5.0% before the first cut. But at its monetary policy announcement last month, it pivoted from the narrative of only trying to suppress inflation to also boosting the economy. The inflation rate is now the closest to the Canadian central bank's 2% target since 2.2% inflation in March 2021, when prices were beginning to rise after about a year into the coronavirus pandemic.

(Source: Reuters

• Jetcon Corporation Ltd was recently appointed sole distributor for (Beijing Automotive Industry Company) BAIC passenger vehicles in Jamaica.
• BAIC stands as one of China's largest automobile manufacturers. Established in 1958, it specializes in a range of vehicles including passenger, commercial, and military. BAIC encompasses various brands like Foton, Beijing, Senova, and Arcfox. It has formed partnerships with Mercedes-Benz and Hyundai to produce vehicles for the Chinese market. As a company listed on the Shanghai Stock Exchange, BAIC extends its export reach to over 80 countries.
• This partnership includes marketing, vehicle sales, servicing and parts supply, officially marking the Company’s foray into the New Car Industry.
• In 2023, Jetcon commenced the importation of BAIC vehicles, aiming to make a mark on the new car market. The used car market has suffered due to higher interest rates, in contrast to the lower rates banks provide for new car purchases. This has had a significant adverse impact on the company's revenue.
• With this exclusive dealership with BAIC, Jetcon projects that by 2025, new car sales will represent the bulk of its revenue. Management also believes that the company will be able to supply more cost-efficient new cars in Jamaica and the Caribbean and give customers real value for money.
• Jetcon Corporation Limited ended Q2 2024 at a net loss of $6.1Mn compared with a $3.5Mn loss for the same period of 2023. This can be attributed to a 67% falloff in revenues to $110Mn as used car sales fell and an increase in Finance Charges. A significant portion of these finance charges stems from the solar division due to financing undertaken for inventory procurement.

(Sources: JSE, Jetcon 2023 Annual Report and Jetcon Q2 Interim Results)

• Minister of Agriculture, Fisheries and Mining, Hon. Floyd Green, is calling on financial institutions to re-evaluate their lending practices to the agricultural sector, urging increased support for small farmers and entrepreneurs.
• “I am imploring our financial institutions to recognise the significance of supporting our farmers and the agricultural sector as a whole and extend a helping hand through the provision of more credit,” he said.
• The Minister was speaking at the Development Bank of Jamaica’s (DBJ’s) Credit Enhancement Facility (CEF) Superstars Awards on Wednesday (August 14) at the Courtyard Marriott in Kingston. The agricultural sector makes up 15% to 20% of Jamaica’s labour force and is also a significant income earner for the country.
• Currently, agriculture accounts for about 8.3% of Jamaica’s gross domestic product (GDP) and the Ministry is looking to enhance the sector’s contribution to economic growth. A large part of agriculture’s income-earning potential lies in its export opportunities. For example, Jamaica earned US$50.4Mn in 2023 through the exportation of yam, a historic achievement for the island.
• In highlighting the challenges faced by farmers, Minister Green said, “A lot of primary producers want to get into agro-processing but lack the capital to do so. Similarly, there exist ripe export markets and a growing need for climate-smart technologies, evidenced by the devastation brought about by Hurricane Beryl. However, these areas are very capital intensive and, without access to financing, cannot be truly developed.”
• In addition, he said, there are a lot of farmers who aspire to utilise more technology in their enterprises but they lack the financial mechanism to attain these resources. Minister Green noted that financial institutions tend to prioritise lending to larger and more established entities, overlooking the potential and needs of farmers and small businesses. “We have to develop ways that we can lend a hand without much fear of being disadvantaged”.
• CEF aims to increase access to credit for MSMEs, providing Approved Financial Institutions (AFIs) and Micro Finance Institutions (MFIs) with additional collateral coverage on loans extended to MSME operators. This collateral coverage serves to mitigate risks for the AFIs and MFIs, enabling them to extend credit to a wider range of MSMEs, foster business growth and economic development in the country.

(Source: JIS)

• Chile's gross domestic product fell 0.6% in the second quarter of 2024 (Q2 2024) compared with Q1 2024, according to data released by the country's central bank.
• The 6% decline aligns with market expectations and is likely to open room for the central bank to deliver more interest rate cuts through the end of the year, economists say. Last month, the local monetary authority kept its benchmark rate on hold at 5.25% following eight cuts in a row since July 2023.
• According to the bank, the quarterly GDP drop was a result of weaker activity in mining, services and manufacturing in the world's largest copper producer, where mining GDP fell 1.0% on a sequential basis. The result marked a steep deceleration from the revised 2.1% quarter-on-quarter growth reported in Q1 2024, which also set a strong comparison base for Q2 2024.
• Chile's economy had been regaining ground after facing a sharp economic downturn in 2023, which followed a rapid post-pandemic recovery that generated inflationary pressures and led the central bank to hike rates. However, as inflation receded, the bank lowered borrowing costs by a total 550 basis points since July 2023 to the current 5.75%.
• "The fall in Chilean GDP in the second quarter is mainly payback for a strong first quarter, and we expect a return to positive growth in the third quarter," Capital Economics' emerging markets economist Kimberley Sperrfechter said. Still, "the weakness shown in the second quarter means that there's scope for the central bank to deliver two more 25-basis-point interest rate cuts, to 5.25% over the remainder of this year," she added.

(Source: Reuters)

• Grenada has become the first country in the world to use a so-called hurricane clause in a government bond, a special feature that allows authorities to postpone debt payments in the wake of a major natural disaster.
• The move comes after hurricane Beryl wrought destruction in parts of the Caribbean last month, including in Grenada where Prime Minister Dickon Mitchell estimated it had caused damage equivalent to roughly a third of its annual economic output.
• In a notice to the holders of one of its only international bonds, the Grenadian finance ministry said it had "elected to make a Deferral Claim as a result of the Event", adding the "modelled loss" to the economy from Beryl was greater than US$30Mn.
• It means Grenada will not make the bond's next scheduled payments due on Nov. 12 and May 12 next year, which combined add up to just over US$12.5Mn. Instead, the money will be added to the US$112Mn bond's subsequent lump sum "principal" payments until the end of its term in 2030. The move, which will also see Grenada defer roughly another US$5Mn made up of a bilateral loan from Taiwan and two other smaller loans, is a landmark step.
• It is the first time a country has triggered a natural disaster clause and Grenada was the first to include one back in 2015 after a previous hurricane led to two debt restructurings in the space of a decade.
• Fellow Caribbean island Barbados followed suit with its version in 2018 although that, and some alternatives including a "catastrophe bond" in Jamaica, have not been triggered in the wake of Beryl. That said, these kinds of clauses are expected to become increasingly widely used as climate change leads to more frequent and intense storms like Beryl.

(Source: Reuters)

• The U.S. Federal Reserve is expected to cut interest rates by 25 basis points at each of the remaining three meetings of 2024, one more reduction than predicted last month, according to a slim majority of economists polled by Reuters who said a recession is unlikely.
• Over a third, 34 of the economists polled, predicted two rate cuts this year, while eleven expected the Fed to cut rates by 100 basis points (bps) or more.
• The higher rate cut expectations follow a weaker-than-expected July U.S. jobs report, which encouraged interest rate futures traders to price in as much as 120 bps of reductions in 2024 earlier this month. That pricing has reduced to roughly 100 bps now.
• Investors also said an abrupt market sell-off was also a driver of aggressive rate cut calls, related to the unwinding of large leveraged positions as a result of a sudden, sharp rise in the Japanese yen.
• Although some Fed officials have hinted rate cuts are coming, most economists in the Aug. 14-19 Reuters poll were not expecting a rapid series of rate cuts. Recent data, including last week's strong retail sales report, suggests the economy is performing relatively well even as inflation recedes.
• The unemployment rate is forecast to remain at around the current 4.3% through 2026, while Inflation is forecast to ease only slightly over the coming two years, according to the median forecasts in the poll. All measures of inflation polled - the Consumer Price Index, core CPI, personal consumption expenditures price index and core PCE - are expected to stay above 2% until at least 2026. Despite recent easing, wage growth has remained above the 3.0%-3.5% range seen as consistent with the Fed's 2% inflation target.
• The Fed was expected to deliver a 25 basis point cut each in the four quarters of 2025. Markets are currently pricing around 200 basis points of reductions by end-Q3 2025.

(Source: Reuters)

• Growth in negotiated wages across Germany slowed in the second quarter (Q2 2024), providing some relief to European Central Bank policymakers and possibly bolstering the case for another interest rate cut in September.
• Negotiated wages rose by 3.1% in Q2 2024 after an alarmingly high 6.2% in the previous quarter, suggesting that inflationary pressure from labour incomes may continue to ease, data from the Bundesbank, Germany's central bank, showed on Tuesday.
• The ECB has long focused on negotiated wages and argues that even if current growth rates are still high, collective agreements already struck point to lower figures in the quarters ahead. Lower wage growth would help bring inflation back down to 2% by next year.
• Still, Tuesday's figures may concern some policymakers as wage growth excluding one-offs, such as bonuses and inflation compensation payments, accelerated to 4.2% in Q2 2024 from 3.0% in Q1 2024. However, monthly figures painted a more nuanced picture with the rate in June down to 4.1% from 4.7% in May.
• Markets currently see a more than 90% chance of a 25-basis-point rate cut in September and expectations were bolstered overnight when Finnish central bank chief Olli Rehn said that weak economic growth may warrant easing next month. The Bundesbank nevertheless warned that wage growth is still quick and focus should shift to wages without the one-offs, since unions continue to demand big pay increases.

(Source: Reuters)

• Consumer prices rose 0.8% in July 2024, with the All Jamaica Consumer Price Index (CPI) rising from 136.4 in June to 137.5 in July.
• This upward adjustment was primarily driven by a 1.9% increase in the heavily weighted index for the division ‘Food and Non-Alcoholic Beverages’. There was a 7.4% rise in the index for ‘Vegetables, tubers, plantains, cooking bananas and pulses’ largely stemming from higher prices for some agricultural produce, chiefly vegetables, in the aftermath of Hurricane Beryl.
• Also contributing to the upward movement in the CPI for July was a 0.4% rise in the index for ‘Transport’ division due to higher petrol prices and increased toll rates for the East-West leg of Highway 2000.
• Despite higher consumer prices during the month, the point-to-point inflation rate for the All Jamaica Consumer Price Index from July 2023 to July 2024 was 5.1%. This was 0.3 percentage points lower than the 5.4% recorded for June 2023 to June 2024. The divisions making the largest contribution to the point-to-point inflation rate were "Transport" (11.5%), "Food and Non-Alcoholic Beverages" (3.5%), and "Housing, Water, Electricity, Gas and Other Fuels" (5.0%).
• The reduction in point to point inflation was largely stemming from the slowdown in the rate of increase in the "Food and Non-Alcoholic Beverages", and "Housing, Water, Electricity, Gas and Other Fuels", declining from 4.0% to 3.5% and 5.9% to 5.0%, respectively.
• At its last monetary policy meeting in June, the BOJ kept its policy rate at 7.00 and agreed to start a gradual easing of its monetary policy stance. Inflation is projected to remain generally within the 4-6% target range over the next two years, with minor deviations in 2025 due to potential fluctuations in agricultural prices. As such, BOJ will continue to monitor these price movements to guide its decisions on policy rate adjustments and other monetary policy actions in the future. The next policy decision will be on the 20th of August.

(Sources: STATIN & NCBCM Research)

• Buoyed by solid revenue growth, Honey Bun reported net profit of $ 240.99Mn for its 9 months ending June 30, 2024, a 19.3% increase year on year.
• Revenue grew 12.9% (or $331.03Mn) YTD to $2.89Bn due to stronger sales. There was also a 7.6% rise in direct costs; however, with revenue growth outpacing direct costs gross margin expanded by 2.7 percentage points to 46.4%.
• Operating Expenses grew by 20.5% (or $175.65Mn) to $1.03Bn. Despite cost pressures, Honey Bun’s operating profit increased by 15.7%, as the rise in revenues outweighed the administrative (+19.7% or $94.87Mn) and selling and distribution (21.5% or $80.79Mn) expenses, supporting growth in its bottom-line.
• Honey Bun has embarked into a new market segment, with the purchase of the retail pastry shop “Swirls” on June 1, 2024. With this acquisition, the Company plans to enhance its product portfolio, offering a wider variety of baked goods and meals to meet the growing consumer demand.
• The company is continuing its growth and expansion strategy with the development of its new production facility in Angels, St. Catherine, which is expected to more than double its manufacturing capacity. The new facility will be between two major highways, giving Honey Bun greater access to markets outside the Kinston and St. Andrew metropolitan area. Overall, as the company continues to expand, it is expected to generate additional revenue, which should aid in sustaining long-term growth and may lead to enhanced earnings performance.
• Reflecting its strong financial performance and investors’ expectations for continued growth in earnings given the recent acquisition and its other expansion plans, Honey Bun’s stock price has increased by 27.5% since the start of the calendar year. The stock closed Thursday’s trading session at $8.16 and currently trades at a P/E of 15.7x earnings, which is below the Junior Market Manufacturing Sector Average of 22.3x.

(Sources: JSE and NCBCM Research)