• Europe's banks risk a significant hit to their profits if house prices across the region begin to slide, regulators and rating agencies have warned.
• While banks' robust balance sheets mean declining house prices are unlikely to pose a systemic risk, the scale of lenders' exposure to the property sector means they could face a hit to earnings, S&P Global Ratings said on Tuesday.
• Home loans typically account for between 30% and 50% of European banks' total customer loans, the rating agency said, adding more cash would likely have to be set aside by lenders for potential defaults as economic conditions worsen.
• “Rising credit risk in mortgage portfolios will lead to a commensurate rise in bank provisioning [for defaults], and a direct hit to their earnings prospects," the agency said.
• S&P's remarks echo concerns raised last week by the European Banking Authority (EBA). The regulator said European Union banks have reported more than 4.1 trillion euros ($4.3 trillion) of loans and advances collateralised by residential property, roughly a third of all loans to households and non-financial firms.

(Source: Reuters)

• The Government of Jamaica (GOJ) will be increasing its budgetary spending by approximately $60Bn during the current 2022/23 fiscal year.
• Clarke explained that the Supplementary Budget reflects amounts provided to cushion the impact of the ongoing Ukraine-Russia conflict on vulnerable Jamaicans. The increase resulted in a proposed revised budget of $972.0Bn up from the previously approved budget of $912Bn for the 2022/23 fiscal year.
• Certain ministries are slated to receive additional allocation as a result of the increased budget. This includes $5.1Bn to the Ministry of Economic Growth and Job Creation; $3.6Bn to the Ministry of Health and Wellness to support the payment of arrears for goods and services and procurement of drugs and medical supplies; and $6Bn to the Ministry of National Security, with $1.5Bn for the Jamaica Defence Force (JDF), $3.3Bn for the Jamaica Constabulary Force (JCF), and $862Mn for the Department of Correctional Services (DCS).
• The $60Bn in additional expenditure will be financed primarily through an expected $65.5-Bn increase in revenue flows. At the end of September 2022, total revenues were $40.4Bn above budget, including $35Bn from tax revenue.
• Clarke said this improved performance has been factored into the current economic forecast, which now anticipates total revenue flows of $815.5Bn for the current 2022/23 fiscal year.

(Source: JIS News)

• Fitch revised its 2022 real GDP growth forecast for Mexico up from 2.0% to 2.7%, following a surprisingly robust Q3 2022 growth print. Growth in Q3 came in at 4.2% y-o-y (1.0% q-o-q in seasonally-adjusted terms), compared to a Bloomberg consensus of 3.3%. 
• With this print, the Mexican economy has now expanded 2.7% through the first three quarters compared to the same period in 2021. The outperformance was driven by resilient private consumption, despite high inflation, as well as strong exports. Goods exports hit an all-time high of USD52.3Bn in September, reflecting the strength of the manufacturing sector and demand from the US, which historically receives roughly 80% of Mexican exports.
• However, growth is expected to slow in Q4 2022 but remain robust at 2.9% as US demand remains solid. Inflation is anticipated to cool while private demand will be boosted by remittances, modest unemployment, and year-end sales.
• Growth will slow more sharply in 2023, to 1.0%, due to weaker demand from the US and elevated interest rates. The Agency forecasted growth in the US to slow from 1.6% in 2022 to 0.3% in 2023 as the US Federal Reserve tightens monetary policy, with the economy entering a minor recession in H2 2022. This will weigh heavily on Mexico’s manufacturing sector, which is highly reliant on US demand, and weaken remittance flows, undercutting private demand.

(Source: Fitch Solutions)

• U.S consumer prices increased less than expected in October and underlying inflation appeared to have peaked, which would allow the Federal Reserve to dial back its hefty interest rate hikes.
• The consumer price index rose 0.4% in October after climbing by the same margin in September. Economists polled by Reuters had forecast the CPI would advance 0.6%. In the 12 months through October, the CPI increased 7.7% after rising 8.2% on the same basis in September. Even with the slowdown in the inflation rate, it still remains well above the Fed’s 2% target.
• Nevertheless, it was the first time since February that the annual increase in the CPI was below 8%. The annual CPI peaked at 9.1% in June, which was the biggest advance since November 1981.
• Though gasoline prices increased after three straight monthly declines, goods inflation is slowing as demand rotates back to labour-intensive services and fractured global supply chains recover. Retailers are also sitting on excess merchandise, forcing them to offer discounts to clear shelves. However, the cost of living remains high.
• Shelter costs, which make up about one-third of the CPI, rose 0.8% for the month, the largest monthly gain since 1990, and up 6.9% from a year ago, their highest annual level since 1982. Also, fuel oil prices exploded 19.8% higher for the month and are up 68.5% on a 12-month basis.
• The food index rose 0.6% for the month and 10.9% annually, while energy was up 1.8% and 17.6%, respectively.

(Sources: Reuters & CNBC)

• U.S. Climate Envoy John Kerry on November 9^th unveiled a carbon offset plan that would allow corporations to fund renewable energy projects in developing countries that are struggling to transition away from fossil fuels.
• The program, called the Energy Transition Accelerator, is in partnership with philanthropic groups like the Rockefeller Foundation and the Bezos Earth Fund and will be finalized over the coming year. Officials argue it could funnel billions of dollars from the private sector into the economies of developing countries working to shift to renewable power sources like wind or solar.
• The plan will create a new class of carbon offsets that represent investments in projects that help accelerate renewable energy projects or build climate change resilience in a developing country. Businesses can buy these offsets to balance out some portion of their CO2 emissions, and the money will go to these projects.
• Chile and Nigeria are among the developing countries interested in the program, the State Department said, and Bank of America, Microsoft, PepsiCo and Standard Chartered Bank have “expressed interest in informing the ETA’s development.”

(Source: CNBC)

• Jamaica holds a score of 47.5 out of 100 in Fitch’s Short-Term Economic Risk Index (STERI), down slightly from a previous 47.9 due to the agency’s outlook for slowing growth, elevated inflation and a high debt burden in the coming years. Vulnerability to external shocks also weighs on the STERI score given a worsening global macroeconomic backdrop.
• Additionally, Fitch’s Long-Term Economic Risk Index score of 45.9 out of 100 reflects structural weaknesses in the economy, including a relatively narrow economic base, inefficient investment policies and historically high unemployment.
• On the other hand, there was an upward revision in Jamaica’s overall score in its Short-Term Political Risk Index from 69.2 to 72.7 out of 100. This reflects the view that a decline in inflation and a recovery in tourism will ease the risks of social instability over the coming quarters.
• Jamaica also has strong 'policymaking' and 'policy continuity' scores, as the ruling Jamaican Labour Party remains largely committed to structural reforms and fiscal responsibility and has a large majority in parliament, with the next election not constitutionally mandated until 2025. 

(Source: Fitch Solutions)

• The building of real estate complexes is becoming more important for the Dominican Republic’s tourism sector as it draws investments that strengthen its value chain and draws in new customers who prefer short-term rental accommodations over hotels.
• The Barahona project, which has a RD$1.7Bn budget and will create 400 direct and 3,000 indirect jobs, is being developed under this modality. The project will be completed by the end of 2023 and will cost US$1,500 per square meter to construct. José Luis Ravelo, who is in charge of the real estate project’s communication, made this announcement at the fair titled “Discover Barahona 2022: Toward a Sustainable Destination.
• Real estate tourism became more prevalent in the Dominican Republic’s tourism industry following the coronavirus pandemic. According to statistics from the Central Bank, short-rent projects have a visitor occupancy rate of over 44%. This project will continue to drive the demand for short-term rental accommodations.

(Source: Dominican Today)

• Mexican inflation is expected to have moderated in October but remained well above the central bank's target, likely cementing forecasts that monetary policymakers will again hike the benchmark interest rate.
• Inflation has blown past the Bank of Mexico's target rate of 3%, plus or minus one percentage point, prompting it to increase its key lending rate by a cumulative 525 basis points to 9.25% during the current hiking cycle, which began in June 2021.
• The central bank's latest monetary policy decision will be announced on November 10, when it is expected toraise its key interest rate by 75 basis points, following the U.S. Federal Reserve's three-quarters of a percentage point hike on November 2.
• However, the closely watched annual core inflation rate, which strips out some volatile food and energy prices, slowed to 8.41% in the 12 months through October, coming in slightly below the 8.44% forecast from analysts at Reuters.
• Despite decelerating from the 8.7% annual rate seen last month, Mexico's inflation remains well above target and markets forecast a fresh 75 basis-point interest rate hike to 10% this week.

(Source: Reuters)

• Oil prices slipped on Tuesday, November 8, as recession concerns and worsening COVID-19 outbreaks in top crude importer China heightened fears of lower fuel demand.
• Brent crude was down 93 cents, or 1%, at $96.99 a barrel, while U.S. West Texas Intermediate (WTI) crude was $1.16, or 1.3%, lower at $90.63.
• Both benchmarks hit their highest since August on Monday amid reports that leaders in China were weighing an exit from the country's strict COVID-19 restrictions.
• However, new coronavirus cases have surged in Guangzhou and other Chinese cities, dimming the outlook for fewer restrictions.
• "It is worth recalling that China’s zero tolerance towards flare-ups of COVID infections was the main reason behind last month’s sizeable downward revision in the world’s oil demand by the International Energy Agency," said PVM analyst Tamas Varga.

(Source: Reuters)

• The U.S. Federal Reserve's ongoing balance sheet drawdown has exacerbated low liquidity and high volatility in the $20-Trn U.S. Treasury debt market, raising questions on whether the Fed needs to re-think this strategy.
• Intended to drain stimulus pumped into the economy during the COVID-19 pandemic, the Fed's quantitative tightening (QT), as it is commonly referred to, has been running for the last five months. The Fed's balance sheet though remains at a lofty $8.7Trn, down modestly from a peak of nearly $9Trn.
• Since September, the Fed has planned to allow $95Bn in balance sheet runoff, meaning it would no longer reinvest the principal and interest payments received from maturing U.S. Treasuries and mortgage-backed securities.
• However, there are underlying liquidity and volatility problems in U.S. Treasuries amid the Fed's aggressive rate hike cycle. The problems can also be traced to long-running structural issues arising from U.S. banking regulations created in the aftermath of the 2008 global financial crisis.
• While the Fed is determined to reduce its balance sheet, if the problems facing investors get out of control, some analysts said the Fed may just halt or suspend it.
• UBS economists said last month the Fed's balance sheet runoff will face several complications through 2023, prompting the Fed to sharply slow or fully stop balance sheet reduction sometime around June 2023.

(Source: Reuters)