• In line with expectations, Colombia’s Banco de la República (BanRep) decided to hold rates at 13.25% for a third time at its September meeting in a five to two vote.
• In his remarks, the Governor of the Board of Directors, Leonardo Villar, stated that members broadly did not think that the conditions were sound to start loosening policy, given that headline and core inflation remain elevated at 11.4% y-o-y and 9.9% in August, respectively.
• In addition, unemployment surprised to the downside, falling to 9.3% in August, the lowest reading for the month since 2018, signalling that rate tightening has not sufficiently slowed the economy to bring inflation under control.
• Given these factors, Fitch Solutions believes that BanRep is likely to start its rate-cutting cycle in October; if inflation continues to ease in line with its expectations. This underpins Fitch’s interest forecasts of 12.75% by end-2023 and 9.25% by end-2024.
• That said, risks are skewed heavily to the upside: If inflation remains hot, BanRep is likely to delay their rate cuts to December or even to 2024. Additionally, risks to Fitch’s 2024 inflation forecast are also elevated, especially in H124, when the El Niño phenomenon could accelerate food and energy inflation.

(Source: Fitch Solutions)

• The number of Americans filing new claims for unemployment benefits rose moderately last week, while layoffs declined in September, pointing to still-tight labour market conditions at the end of the third quarter. The economy's prospects during the last quarter were bolstered by other data on Thursday showing the trade deficit shrinking to its smallest in nearly three years in August, with exports of capital goods hitting a record high. The economy has so far weathered hefty interest rate increases from the Federal Reserve to cool demand. That resilience raises the risk of the U.S. central bank hiking rates again by year-end.
• Initial claims for state unemployment benefits increased by 2,000 to a seasonally adjusted 207,000 for the week ended Sept. 30, the Labour Department said. Economists polled by Reuters had forecast 210,000 claims for the latest week. For much of September, claims hovered in the lower end of their 194,000-265,000 band for this year.
• Claims could push higher this month as the United Auto Workers (UAW) strike, now in its third week, constrains supply chains and forces manufacturers to temporarily lay off more non-striking workers. Ford Motor, General Motors and Chrysler-parent Stellantis have furloughed and laid off hundreds of workers because of strike impacts.
• Though conditions remain tight, the labour market is gradually cooling. The government reported on Tuesday that there were 1.51 job openings for every unemployed person in August and unfilled positions increased by the most in two years.
• The Commerce Department reported a 9.9% contraction in the trade deficit to $58.3 billion, the lowest since September 2020, beating economists' expectations of $62.3 billion. Exports of goods and services increased by 1.6% to $256.0 billion, driven by a surge in goods exports, particularly capital goods. However, food and beverage exports hit a low point.
• Imports of goods and services fell by 0.7% to $314.3 billion, with a notable decline in consumer and capital goods imports, potentially indicating reduced domestic demand due to higher borrowing costs. Economists predict that trade will contribute significantly to third-quarter GDP growth after being neutral in the previous quarter, expecting a boost of at least one percentage point to GDP growth.
• Economists foresee continued short-term support for economic growth, anticipating that foreign consumers will buy more American goods and the recovering manufacturing industry will bolster growth.

(Source: Reuters)

• The International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, emphasized the need for structural reforms in Germany due to current global economic challenges.
• Germany is perceived as potentially the only major economy contracting in 2023, prompting discussions about it becoming the "sick man of Europe" again.
• The auto industry is a critical area for reform, with Georgieva stressing the need to restructure it for future productivity.
• Germany's auto industry, a significant export sector, is facing challenges due to weakened car production and exports attributed to consumer spending constraints and economic uncertainties.
• The IMF predicts a mild recession in Germany this year but expresses confidence that the country will recover as energy price shocks and inflation subside.
• Globally, the IMF notes a slow and uneven recovery, with the U.S. being the only large economy that has fully recovered from the pandemic's economic impact. Emerging markets and low-income countries are lagging further behind in their recovery. The IMF projects average global growth at 3% over the next five years, down from pre-pandemic levels of around 3.8% over the previous decade.

(Source: CNBC)

• At its meetings on 27 and 28 September 2023, the Bank of Jamaica (BOJ) unanimously agreed to maintain: (i) the policy interest rate (the rate offered to deposit-taking institutions (DTIs) on overnight placements with BOJ) at 7.0%, (ii) tight Jamaican dollar liquidity conditions, and (iii) stability in the foreign exchange market.
• The decision to maintain the monetary policy stance is aimed at ensuring that Jamaica’s inflation rate continues to trend downward to the Bank’s target range of 4.0 to 6.0%. The annual headline inflation rate in August 2023 of 6.8% was above the outturns in July (6.6%), June (6.3%) and May (6.1%) 2023, but much lower than the peak rate of 11.8% recorded in April 2022. Correspondingly, core inflation (which excludes food and fuel prices from the Consumer Price Index (CPI)) increased to 5.6% in August 2023 from 5.5% in July 2023 but was lower than the 8.4% recorded in April 2022.
• As anticipated by the Bank, the mild uptick in inflation between May and August 2023 was driven by several shocks. Increases in telephone and internet rates, the national minimum wage and higher agricultural prices, along with some upward movement in energy-related prices such as water, electricity and transportation costs, contributed to inflation over the period. The other key drivers of inflation, such as grain prices, shipping costs and inflation expectations, however, continued to generally trend downward.
• The Monetary Policy Committee expects that the higher-than-targeted inflation rate over the past four months will continue in September 2023, due to higher agricultural prices, education costs, oil prices and wage pressures. While the Bank is still projecting that inflation will decelerate to the target range in the December 2023 quarter and generally remain there except for some months in 2024, it has heightened its surveillance of the risks to this outlook.
• The risks to the inflation outlook are skewed to the upside. Higher-than-projected future wage adjustments in the context of continued tightness in the domestic labour market, second-round effects from the sharp increase in agricultural price inflation over the first half of 2023, worsening supply chain conditions and continued increases in world oil prices could put further upward pressure on inflation. Downside risks to this outlook include weaker-than-expected global growth, which could reduce domestic demand, and the non-materialisation of some projected increases in regulated prices.
• Future monetary policy decisions will depend on incoming data related to the strength of the potential headwinds to inflation noted above. As such, the Bank will continue to closely monitor the global and domestic economic environments for these potential risks to Jamaica’s inflation rate. If the emerging risks materialise, the MPC noted that it is prepared to take the necessary actions to anchor inflation sustainably within the target range in the shortest possible time.

(Source: BOJ)

• Food manufacturing and distribution company Seprod received shareholder approval to increase the company’s authorised shares but remains tight-lipped on when the new capital will be deployed and for what purpose.
• The company's share capital will increase from 780Mn shares to 1Bn, creating 220Mn additional units.
• The food manufacturing and distribution company is valued at over $50Bn and almost 750Mn of its shares are issued and listed on the Jamaica Stock Exchange.
• Seprod has said that the new shares would be listed after they are deployed, but no information on when or how the transaction will be structured has been provided.

(Source: RJR News)

• Fitch Solutions believes that the Barbadian authorities will proceed with fiscal restraint in the coming quarters, but will avoid major cuts to components like subsidies and the wage bill that are sensitive to social discontent.
• Barbados entered an IMF-backed reform programme in December 2022 that consists of a 36-month, USD189.0Mn Extended Fund Facility (EFF) and US11.3Mn Resilience and Sustainability Facility (RSF) to help the market cope with a series of recent shocks including the COVID-19 pandemic and natural disasters.
• More recent data shows that in H123, the government managed to record a primary surplus (1.2% of GDP) despite stable growth in the wages & salaries and transfers & subsidies components of spending. This is broadly in line with the government’s decision to raise the salaries of civil servants by 3.0% in FY2023/24 and FY2024/25. The government has also raised the personal tax allowance by 12.5% in the FY2023/24 budget, suggesting that while the government is committed to fiscal consolidation, it is avoiding major changes to more politically sensitive components of fiscal policy.
• This, coupled with a high degree of policy continuity and peaceful relations with neighbouring countries means that Barbados will stay among the most politically stable markets in the region.

(Source: Fitch Solutions)

• Total visitor arrivals to The Bahamas reached 6.6 million in August, according to the latest data from the Central Bank. The Central Bank, in its Monthly Economic and Financial Development report for August, noted total arrivals from January to August were up 53.5% from January to August in 2022.
• Official data provided by the Ministry of Tourism (MOT) revealed that total visitor arrivals expanded to 0.74Mn in August from 0.62Mn in the corresponding period of 2022. Arrivals by sea rose to 0.62Mn from 0.50Mn passengers in the prior year. In addition, air traffic improved moderately to 0.13Mn —representing 98% of the pre-pandemic high that was registered in 2019.
• In the short-term vacation rental market, data provided by AirDNA also reflected positive trends during August. Specifically, total room nights sold rose to 161,513 from 140,512 in the comparative 2022 period.
• The tourism sector is still anticipated to be the main growth driver for the Bahamas, with arrivals set to be supported by a further recovery in global travel from the main impacts of the COVID-19 pandemic.
• Nonetheless, the Bahamas is forecast to see 4.0% real GDP growth in 2023, down from an estimated 8.1% in 2022 as strong base effects fade and global growth slows. The country is also expected to register elevated inflation, which will weigh on real household disposable incomes.

(Source: Eyewitness News & Fitch Solutions)

• The 10-year Treasury yield, which serves as a benchmark for mortgage rates and as an investor confidence barometer, on Tuesday surged to its highest level since 2007. The 10-year Treasury yield was last up about 8 basis points to 4.758%. The 30-year Treasury yield rose as high as 4.874%, also the highest since 2007. The 2-year Treasury yield, which is sensitive to expectations around where the Federal Reserve will set its key borrowing rate, increased slightly to 5.129%.
• Speaking Monday, Fed Vice Chair for Supervision Michael Barr said it’s less important to focus on another hike and more critical to understand that rates likely will remain elevated “for some time.” And Cleveland Fed President Loretta Mester, a nonvoter this year on the FOMC, said “We may well need to raise the fed funds rate once more this year and then hold it there for some time.”
• Market uncertainty remains about when and whether a rate increase may be implemented. Two central bank policy meetings remain this year, Oct. 31-Nov. 1 and Dec. 12-13. Market pricing Tuesday morning was pointing to just a 25.7% chance of a hike on Nov. 1, but a nearly 45% probability in December, according to futures pricing measured in the CME Group’s FedWatch Tool.
• Rising yields come even though U.S. lawmakers were able to avoid a government shutdown as they passed a last-minute spending bill on Saturday night. That has bought them time to finish the necessary government funding legislation. A shutdown could have negatively affected the U.S. credit rating as well as the country’s economy.
• The jump in rates has rekindled talk about market “bond vigilantes,” a term coined by economist Ed Yardeni to describe the impact when fixed-income investors leave the market because of worries over U.S. debt. Persistently high fiscal deficits are one factor in the rising costs of borrowing. Public debt has risen past $32.3 trillion this year. Debt has risen to nearly 120% of total gross domestic product.
• “The worry is that the escalating federal budget deficit will create more supply of bonds than demand can meet, requiring higher yields to clear the market; that worry has been the Bond Vigilantes’ entrance cue,” Yardeni wrote Tuesday morning in a note titled “The Bond Vigilantes Are On The March.”

(Source: Reuters)

• Employment vacancies at U.S. businesses unexpectedly surged in August, a sign that the labour market remains tight and robust. Job openings totalled 9.61Mn for the month, a jump of nearly 700,000 from July and well above the Dow Jones estimate for 8.8Mn, the Labour Department said Tuesday in its monthly Job Openings and Labour Turnover Survey.
• Hires, however, rose only modestly, moving up to 5.857Mn, an increase of just 35,000. Much of the increase in openings came in professional and business services, which showed a burst of 509,000.
• Stocks fell following the report as a tighter labour market could put more pressure on the Fed to keep interest rates elevated. The Dow Jones Industrial Average most recently was off more than 260 points in the session.
• Openings had been on the decline for the last several months, indicating that the central bank’s interest rate hikes were beginning to have an impact on a labour market that had been hit by a large supply-demand mismatch in which openings had outnumbered available workers 2 to 1. The ratio now is down to 1.5 to 1, following an increase of workers classified as unemployed in August.

(Source: CNBC)

• For August 2023, output prices for producers in the Mining and Quarrying industry increased negligibly while prices in the Manufacturing industry increased by 1.9% as reported by the Statistical Institute of Jamaica (STATIN).
• The negligible movement in the Mining and Quarrying industry was attributed to the stability of the exchange rate during the period. The index for the major groups ‘Bauxite Mining & Alumina Processing’ and ‘Other Mining & Quarrying’ each registered negligible changes in their respective indices.
• An increase of 10.8% in the index for the major group ‘Refined Petroleum Products’, due mainly to increased fuel prices on the international market, was the main contributor to the 1.9% increase in the Manufacturing industry. The index for the heaviest weighted major group within the industry, ‘Food, Beverages & Tobacco’, had a negligible change. This was largely due to a combination of factors, including a stable Jamaican dollar relative to the United States dollar and the relatively stable prices for inputs used by manufacturers.
• For the period August 2022 - August 2023, the index for the Mining and quarrying industry increased by 6.3%. This was a result of a similar 6.3% rise in the index for the major group 'Bauxite & Alumina Processing’. For the same period, the index for the Manufacturing industry increased by 0.4%. This was mainly due to an increase of 2.6% in the index for the major group ‘Food, Beverages & Tobacco’. The industry’s increase was tempered by a 9.0% decline in the index for ‘Refined Petroleum Products’.
• 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. While there was a minor dip in the PPI in June, the PPI for August inched up marginally for both manufacturing and mining & quarrying. The decision by OPEC+ to curtail oil supply is a likely explanation for the increase and could cause a further escalation in producer prices given that reduced oil supply has the potential to drive up costs in key areas in the economy.

(Sources: STATIN & NCBCM Research)