• U.S. stock investors should brace for a correction in upcoming months, Wells Fargo & Co. strategists said, joining a chorus of warnings that Wall Street is in for a bumpier ride after last year’s powerful rally. 
• Pullbacks will likely be more frequent in this choppier equity market,” the strategists led by Christopher P. Harvey wrote in a note to clients, forecasting a 10% drop for the S&P 500 Index by summertime. “Ultimately, the bend-but-not-break market mentality finally fails investors in 2022.” 
• The U.S. equity benchmark is trading near a record high, after delivering a blockbuster 27% rally last year. With the Federal Reserve preparing to hit the brakes on support measures, and fears rising that economic recovery may have reached its peak, strategists from Goldman Sachs Group Inc. to BlackRock’s Investment Institute expect returns to be more muted this year, while JPMorgan Chase & Co. warned this week that the U.S. market “could stall” if the outperformance of technology stocks starts to wane.

(Source: Bloomberg)

• The euro zone's economic recovery stuttered in December as a renewed wave of COVID-19 infections curtailed growth in the bloc's dominant service industry, a survey showed on Wednesday, and could weaken further if tighter restrictions are imposed. 
• As the Omicron coronavirus variant spread rapidly at the end of last year governments reimposed measures to contain infection rates, particularly in Germany, Europe's largest economy. 
• That meant IHS Markit's Composite Purchasing Managers' Index (PMI), a good gauge of overall economic health, sank to 53.3 in December from 55.4 in November, its lowest since March. 
• "The final Composite PMIs for December confirm that the euro zone economy ended 2021 on a weak note. The economy lost momentum at the end of last year but still appeared to be expanding," said Jack Allen-Reynolds at Capital Economics.

(Source: Reuters)

• In November 2021, the Planning Institute of Jamaica (PIOJ) released its estimate of GDP which projected a 6.3% expansion for the Jamaican economy in the September 2021 quarter relative to the corresponding quarter of 2020. The estimated output in the Goods Producing and Services Industries was 2.8% and 7.3%, respectively. The performance was premised on a few key factors, including increased employment, both locally and in major trading partners; the easing of containment measures implemented to curtail the spread of COVID-19; increased vaccination globally; and the continuation of building projects and road construction works. 
• However, official figures released by the Statistical Institute of Jamaica (STATIN) last week showed that the Jamaican economy grew by 5.8% during the third quarter of 2021 relative to the third quarter of 2020. This is below the 6.3% estimate for the quarter put forward by the PIOJ. This expansion stemmed from slightly lower growth outturns of 7.1% and 2.4% in the Services and Goods Producing Industries respectively. 
• The growth in the Services Industries was due to improved performance in all eight (8) industries. However, Hotels & Restaurants led the recovery, registering an increase of 114.6%. The other major contributors to the performance in the Services Industries were Transport, Storage & Communication (+8.8%), Wholesale & Retail Trade; Repairs; Installation of Machinery & Equipment (+4.4%), Other Services (+12.2%), and Finance & Insurance Services (+2.3%). 
• On the other hand, the performance of Agriculture, Forestry & Fishing (+7.3%) led to the increase in the Goods Producing Industries. Manufacturing (+4.6%) and Construction (+4.4%) also aided growth. The performance was, however tempered by Mining & Quarrying, which declined by 29.7%. The outturn in the Mining & Quarrying Industry can be explained by the fire which occurred at the JAMALCO plant on August 22, 2021. The fire will constrain the contribution of that industry to economic growth for at least the next two years.  
• The growth outturn was a surprise to the downside and stemmed primarily from the thirteen ‘No Movement’ days that were implemented between August and September to help curb the COVID-19 outbreak that happened during the quarter. The implementation of the days brought commercial activity to a virtual standstill and as a result, weighed on the GDP performance during the period. 
• For the December 2021 quarter, the PIOJ anticipates that the Jamaican economy expanded between 5.0% and 8.0%. All industries, except for the Mining & Quarrying industry, are expected to record growth. This is predicated on, the continued economic recovery in most industries following the relaxation of COVID-19 containment measures in Q4 2021 relative to the measures which were in place during the December 2020 quarter; the gradual re-opening of the economies of Jamaica’s main trading partners, which is expected to facilitate higher levels of external demand, particularly for tourism-related services; and higher levels of employment and the easing of the curfew times during December, which are expected to have supported an increase in demand.  
• However, the downside risks to the outlook are the presence of the ever-evolving COVID-19 virus and the fire at JAMALCO’s refinery plant, which is expected to impact growth figures for at least the next eight quarters.

(Sources: PIOJ & STATIN)

• Mexican annual inflation likely accelerated to a two-decade high in December, a Reuters poll showed on Monday, reinforcing expectations that the central bank will raise its key interest rate for the sixth consecutive time next month. 
• The consensus forecast of 11 analysts surveyed was for inflation to advance to 7.51% from 7.37% in November. If the prediction is correct, that would be the highest rate seen since January 2001, when inflation hit 8.11%. 
• The core rate of inflation, which strips out some volatile food and energy items, was seen accelerating to 5.94%, which would be the highest since October 2001. The Bank of Mexico (Banxico) raised its benchmark interest rate more than expected last month to 5.50% as it sought to contain rising price pressures. 
• Banxico's next monetary policy meeting is scheduled for February 10. The bank targets inflation of 3%, with a one percentage point tolerance range above and below that. That being said, we are likely to see more rate hikes in the near term as the government attempts to guide the inflation rate back to the target. 
• The higher rate will have a mixed impact on the banks and non-banking financial institutions (NBFIs) in Mexico that we currently recommend. While it is expected that the higher rates will result in a reduction in the demand for loans for banks, due to the higher borrowing costs, the revenue boost from the higher rates is expected to offset this factor. NBFI’s earnings could be affected by higher funding costs combined with the fact that NBFI business models focus on sensitive sectors of the economy, such as SMEs.

(Source: Reuters & NCBCM Research)

• Colombia’s peso started the New Year by hitting a post-pandemic low. It may be a sign of things to come ahead of the May 29 presidential election.  
• While the currency is undervalued based on fundamental factors, congressional and presidential elections will likely stoke tensions and “temper a return to fair value,” wrote Kathryn Rooney Vera, head of research and strategy at Miami-based Bulltick LLC. The peso tumbled almost 16% in 2021, despite a 50%-plus rally in the price of oil. 
• That weakness has become a familiar story across the Andean region in the past year, with currencies sinking as left-wing candidates surge in the polls and finally win the election, spooking investors accustomed to decades of market-friendly policies. Even soaring commodity prices and rising interest rates did little to salvage the Chilean peso and the Peruvian sol last year. 
• The peso lost as much as 0.9% to 4,105.50 to the dollar on Monday, the weakest since March 2020, before ending the day flat. It weakened again on Tuesday.

(Source: Bloomberg

• The historically high pressures on global supply chain networks that have contributed to shortages of key goods and materials and a surge in inflation may have peaked, according to a new index released by the New York Federal Reserve on Tuesday. 
• The Global Supply Chain Pressure Index (GSCPI) which tracks supply chains surged early in the pandemic when China imposed lockdown measures. More recently, the (index) seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward. 
• The index is based on 27 variables such as shipping rates and air freight costs between the United States, Asia and Europe. Researchers found "enormous growth" in shipping costs since the beginning of the recovery from the lows at the start of the pandemic. But that growth has started to slow in recent months. 
• The index, draws on data going back to 1997, and shows that global supply chain pressures are substantially higher now than in previous times of stress. For example, pressures rose in 2011 after two natural disasters, including an earthquake in Japan and flooding in Thailand. The index rose again during the U.S.-China trade war in 2017 and 2018. But those spikes pale in comparison to what has been observed since the COVID-19 pandemic began.

(Sources: Investing.com)

• Treasury traders are betting the rapid spread of the omicron variant will increase inflationary pressures in the U.S. economy, rather than weaken them. 
• U.S. 10-year break-even rates which are market estimates for the average rate of inflation over the next decade climbed to as high as 2.66% on Tuesday, the most since November, and up from as low as 2.36% on December 14. The extra yield on Treasury 10-year notes over two-year securities has also jumped this week, indicating the bias may be switching back to a steeper yield curve. 
• The move came after Treasuries posted their worst start to the year since 2009 sending ripples through markets from Australia to the U.K. amid growing expectations that the Federal Reserve will start to raise its policy rate as soon as May, earlier than the July liftoff projected a month ago.

(Source: Bloomberg)

• Bank of Jamaica (BOJ) has announced that it has successfully completed the Central Bank Digital Currency (CBDC) pilot. In March 2021, BOJ announced that it was testing a prototype central bank digital currency with vendor, eCurrency Mint Inc. in BOJ's Fintech Regulatory Sandbox. This was followed in May 2021 by the commencement of an 8-month long pilot which ended on December 31, 2021. 
• Success of the pilot project was dependent on whether a central bank digital currency along with the attendant technology solution could be successfully implemented in Jamaica. Several activities were targeted and completed during the pilot. This included minting CBDC, issuing CBDC to wallet providers and distributing CBDC to retail Customers. 
• The National Roll-Out of the CBDC is scheduled for the first quarter of 2022 whereby NCB will continue onboarding existing customers and new customers. Two additional wallet providers, who are now conducting virtual simulation testing, will be able to order CBDC from BOJ and distribute it to their customers. The testing of transactions between customers of various participating wallet providers will also be undertaken as part of the national Roll-Out. 
• CBDC is a form of central bank-backed currency and is, therefore, legal tender. It can be exchanged, dollar for dollar, with actual cash and is issued to licensed deposit-taking institutions (DTIs). Individuals, households, and businesses can use it to pay for goods and services, as obtained with cash. According to the Bank, the benefits to be derived by citizens, businesses and the Government from the adoption and introduction of a viable digital currency solution include increased financial inclusion and another means of efficient and secured payments. Additionally, the BOJ says CBDC represents an opportunity for DTIs to improve cash management processes and costs.

(Sources: Bank of Jamaica)

• Prime Minister the Most Hon. Andrew Holness, has said that the Government was able to reallocate resources within the Budget to deliver over $100.0Bn for social protection and recovery support without any increase in borrowing. 
• The Prime Minister noted that while for some this may not seem like a big deal, in the past, shocks such as a storm or commodity price shocks as experienced in the 1970s and 80s, or a global financial recession as experienced in 2009, would have precipitated major economic crises with long recovery periods. 
• The International Monetary Fund observed in its recent Concluding Statement on Jamaica, that unlike in the past, the pandemic related shock was not followed by a fiscal, financial, or balance of payments crisis. The Prime Minister noted that this is a solid testament of the maturing of Jamaica's economic management and how far the country has progressed in its quest for economic independence. 
• He further noted that this solid fiscal platform underpins the strong recovery that is already being seen in the Jamaican economy. Tourism has rebounded to almost 70.0% of pre-pandemic levels, employment is rebounding with the return of some 93,000 jobs, and expectations are that the country will record growth of around 8.0%.

(Sources: JIS News)

• Several heads of various sectors of the economy believe Trinidad and Tobago is in for significant declines in 2022, as the pandemic persists and uncertainty looms. 
• Their comments came after the Central Bank on Friday issued its final Monetary Policy Announcement (MPA) for 2021 which said there would be further increases in food and core inflation. 
• "Food inflation surged to 7.6% from 5.8% in September and is likely to rise further given the situation in the global grain markets," it said. 
• The Central Bank pointed out that headline inflation in October moved to 3.9% year-on-year when compared to 2.4% in September. Core inflation, which excluded food, doubled to 2.9% and the index of building material prices rose by 12.6% during the third quarter of 2021. 
• Economist Dr. Vaalmikki Arjoon told Sunday Newsday that the increase in wheat prices has started a chain reaction that would further exacerbate an already high cost of living.

(Source: Trinidad and Tobago Newsday)