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External Headwinds Growing For Latin America Published: 05 October 2021

  • Weakening risk sentiment in global financial markets presents a growing challenge to Latin America and will likely contribute to pressure for higher interest rates. 
  • Concerns over the Chinese real estate developer Evergrande's solvency are threatening the Chinese real estate market and in turn generating risks to emerging markets (EMs). 
  • Adding to China's challenges, a coal supply crunch is creating acute power shortages that pose additional downside risks to Chinese economic activity. At the same time, US markets softened over the last week in part over a volatile political environment in which the outlook for raising the federal debt limit is unclear and highly risky
  • The upshot is that Latin America's currencies have weakened and debt costs have risen, which may add to pressures on central bankers in the region to tighten monetary policy, all the while generating headwinds to economic activity. 
  • The Bank of Jamaica like other central banks in the region has begun tightening monetary policy to curb rising inflation. It is also likely to generate headwinds to economic activity by raising the cost of borrowing for businesses and consumers.

(Source: Fitch Solutions)

InvesTT Looks to Attract $230Mn In FY22 Published: 05 October 2021

  • INVESTT (T&T’s national investment promotion agency, in alignment with the Ministry of Trade and Industry) is aiming to attract $50 million in foreign direct investment (FDI) and $180 million in local investment in the current fiscal year, according to its newly appointed chair Franka Costelloe. 
  • Speaking at the virtual launch of the Trinidad and Tobago Investment Forum 2021 last week, Costelloe said the agency's mission is to attract, facilitate and retain foreign and local investment in Trinidad and Tobago and it takes its mandate seriously. 
  • 'Notably, between 2016 and 2020, we have secured 17 investment projects with a generated capital expenditure of $526 million. This translates into a projection of 1,405 local jobs created during this period.' 
  • She noted that the FDI lead pipeline, to meet this fiscal year's $50 million target, is healthy due to the consistent employment of focused targeting and marketing techniques. Costelloe believes the T&T Investment Forum will continue to add to the momentum already established in its investment promotion. 
  • 'Barring the impact of the pandemic, this year, in fact, is projected to be our biggest annual success to date, estimated at $265 million against a $135 million target, with nine investments generating 850 jobs. Such success comes with great determination from our most valuable resource – our InvesTT Team.'

(Source: Trinidad Express Newspapers)

S&P 500 Slides as Tech Bloodbath Continues Published: 05 October 2021

  • The S&P 500 slumped Monday, paced by a selloff in tech at a time when investors are fretting about rising inflation and slowing growth. The S&P 500 fell 1.3%, the Dow Jones Industrial Average slipped 1.1% or 385 points, the Nasdaq was down 2.4%. 
  • Facebook, down nearly 6%, led the slump in tech after a Facebook whistle-blower named Frances Haugen alleged that the social media company prioritizes profit over the wellbeing of its users. The news brought the regulatory spotlight back onto the social media companies, with Twitter and Snap falling more than 6%. 
  • The selloff in tech was exacerbated by a further malaise in sentiment on growth stocks as investors price in higher rates and inflation. Growth stocks like tech, with high valuations, tend to have cash flow that extends further out into the future, which is unattractive in an inflationary environment.

(Source: Investing.com)

 

Oil Settles Above $81 With OPEC+ Sticking To Output Increase Published: 05 October 2021

  • Oil jumped to a three-year peak on Monday after OPEC+ confirmed it would stick to its current output policy as demand for petroleum products rebounds, despite pressure from some countries for a bigger boost to production. 
  • The producer club's decision to keep increasing oil output gradually sent prices sharply higher, adding to inflationary pressures that consuming nations fear will derail an economic recovery from the pandemic.
  • OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, has faced pressure from some countries to add back more barrels to the market as demand has recovered faster than expected in some parts of the world. However, the group has been reluctant to do so and is sticking with its 400,000 barrels per day (bpd) each month agreement.

(Source: Reuters)

BOJ Reduces Monetary Accommodation & Raises Policy Rate by 100bps Published: 01 October 2021

  • Bank of Jamaica (BOJ) announced its decision to increase its policy interest rate; the rate offered to deposit-taking institutions on overnight placements with BOJ, by 100 basis points to 1.5% per annum, effective 01 October 2021. 
  • Accompanying this rate increase, the Bank decided to continue implementing measures to contain Jamaican dollar liquidity expansion. While not targeting any specific level of the exchange rate, Bank of Jamaica will continue to ensure that further movements in the exchange rate do not threaten the inflation target. 
  • These decisions to reduce the level of monetary policy accommodation were made by a unanimous vote by the Bank’s Monetary Policy Committee (MPC), and were based on the MPC’s assessment that, following the breach in August 2021, the risks of continued breaches of the inflation target, have intensified. 
  • At its last meeting in August, the MPC had projected that inflation over the next two years would average 5.5% to 6.5% and would breach the upper limit of the Bank’s target over the first year, starting in the September 2021 quarter. The recent significant increases in international commodity prices and shipping costs have had a higher than expected pass through to local prices and have contributed to further increases in inflation expectations. Additionally, consumers will also be faced with higher prices for agricultural commodities as a result of the passage of tropical storms Grace and Ida in August 2021, which may also contribute to a worsening of inflation expectations. 
  • Consistent with meeting its inflation target sustainably in the medium term, the Bank also signaled its intent, subject to inflation and other macroeconomic data evolving as projected, to continue to reduce the level of monetary accommodation at subsequent policy meetings by increasing the Bank’s policy rate.

(Source: Bank of Jamaica)

Three-Stage Resumption Model for Jamalco Published: 01 October 2021

  • Minister of Transport and Mining, Hon. Robert Montague, has said that Jamalco will be implementing a three-stage resumption model as the Clarendon-based facility recovers from a major fire that occurred over a month ago. The fire resulted in significant loss of assets and stopped alumina production. He noted that the three-stage plan will provide the best results for all stakeholders. 
  • The fire, which occurred on August 22, resulted in loss of vital assets, including the powerhouse, two turbine generators, turbine generator control equipment, two control rooms and a fuel oil pump station, and damaged other types of equipment. It has stopped production at the refinery, which will affect the company and the wider economy through lower short-term employment and real GDP. 
  • There will be a decline in alumina production and the related foreign exchange earnings for 2021 into 2022 and possibly into 2023. This is already having a direct effect on the finances of the Clarendon Alumina Production Limited (CAP), as the company will not earn any income until alumina production resumes. He advised that, currently, the refinery’s losses are estimated at US$500,000.00 per day based on production cost of US$150 per ton of alumina, at a production rate of 3,170 tons per day. 
  • Stage one will involve the refinery being returned to action as a single-digester operation, mostly utilising existing infrastructure. During stage two, the plant will be moved to a two-digester operation, which will significantly reduce reliance on JPS and improve power plant reliability by switching to the rental of gas turbines. A new gas-fired powerhouse with heat recovery is to be built to replace the rented boilers during stage three as focus is placed on long-term solutions and improving Jamalco’s efficiency and global competitiveness.

(Source: JIS News)

Mexico's Central Bank Hikes Rates To 4.75% On Inflation Concerns Published: 01 October 2021

  • The Bank of Mexico raised its benchmark interest rate by 25 basis points to 4.75% on Thursday, as expected, in a four-to-one vote by its governing board, as the central bank expressed concern about above-target inflation. 
  • All 22 analysts surveyed in a Reuters poll had expected the bank, known as Banxico, to raise the rate for the third time in a row to 4.75%. "Although the shocks that have increased inflation are expected to be transitory, due to their variety, magnitude and the extended horizon over which they have affected it, they may pose risks to the price formation process and to inflation expectations," Banxico said in its monetary policy statement. 
  • In order to avoid those risks, Banxico said it deemed it necessary to hike the key rate. Mexican consumer prices during the first half of September rose 0.42% to reach annual inflation of 5.87%, already edging above the 5.59% clocked for August, official data showed last week. That is far above Banxico's target rate of 3% plus or minus one percentage point. 
  • Banxico said that annual headline and core inflation projections are expected to decrease, particularly for one year and beyond, and to converge to its 3% target by the end of the forecast horizon.

(Source: Reuters)

Brazil’s Fiscal Rebound Does Not Guarantee Lasting Debt Reduction Published: 01 October 2021

  • Brazil’s improving fiscal performance means 2021 outturns will be better than previously forecast, but permanent stabilization and reduction of the public debt burden will require returning to primary surpluses in the coming years. 
  • Fiscal prospects have improved due to strong revenue recovery and contained spending growth. Net central government revenues grew over 30% in real terms in 7Months of 2021 compared to the same period in 2020. Higher revenue growth reflects high nominal GDP growth and greater consumption of goods than services, the former being taxed more. 
  • Combined with improved budgetary performance by regional governments, this means the general government primary deficit is likely to end 2021 below 1.5% of GDP, down from the 2.4% previously forecasted, despite the reintroduction of emergency aid to vulnerable segments of the population. Debt is expected to fall this year to 81.5% (previous forecast: 84.2%) of GDP from 88.8% of GDP last year. 
  • The 2022 budget presented on 31 August envisages further consolidation, targeting a primary deficit of 0.5%, mainly as pandemic spending is unwound. Non-tax revenue assumptions appear cautious as they do not include income from concessions or privatizations, but the budget’s 2.5% growth assumption appears optimistic.

(Source: Fitch Solutions)

China’s Factories Contract For First Time Since Pandemic Began Published: 01 October 2021

  • China’s factory activity contracted in September for the first time since the pandemic began last year, a sign of the damage a widespread electricity crunch is having on an already slowing economy. 
  • The official manufacturing purchasing managers’ index declined to 49.6 from 50.1 in August, the National Bureau of Statistics said Thursday, below the 50 median estimate in a Bloomberg survey of economists. Readings below the 50-mark signal a contraction in output. 
  • China is facing a widespread power crunch that threatens to slow economic growth and disrupt global supply chains just ahead of the year-end Christmas shopping season. At least 20 provinces have restricted electricity use in September, curbing factory production on everything from aluminum and steel to toys and clothing. 
  • The electricity shock adds to a slew of headwinds already hitting the economy: the financial system is under stress because of China Evergrande Group’s debt crisis; high commodity prices have squeezed industrial profits; the government has cracked down on industries from property to the internet; and consumer spending remains weak due to virus outbreaks.

(Source: Bloomberg)

Stocks Continue Decline As Inflation Fears Persist Published: 01 October 2021

  • Global stock markets continued to fall Thursday as inflation fears persisted and expectations grew that the U.S. Federal Reserve will tighten policy in the coming months. 
  • Earlier in the week, global stock markets suffered their worst rout since January. A heavy sell-off in tech stocks on Tuesday had consigned Wall Street to its steepest drop since mid-July. Global shares had staged a partial recovery Wednesday but resumed their decline on Thursday. MSCI's gauge of stocks across the globe shed 0.04%. 
  • "U.S. investors are glad to see September end," said Edward Moya, senior market analyst at OANDA, summing up the mood of most market participants. "US stocks ended mostly on a down note as lawmakers try to avoid a government shutdown and deliver on the $1 trillion infrastructure bill, all while an energy crisis brews abroad."

(Source: Reuters)