• The prospects of speedier interest rate hikes from the Federal Reserve and ongoing supply chain disruptions weighed on Wall Street Wednesday, while oil dropped on concerns of oversupply and dwindling demand.
• U.S. stocks spent most of the trading day in negative territory, after a Tuesday boost driven by better than expected U.S. retail numbers. Rising inflation and potent consumer demand suggested to investors the Fed could hike rates quicker, while supply chain concerns drove down retailers like Target and Walmart. 
• "The good news for investors is that aggregate demand appears to be weathering the surge in inflation so far," wrote Bank of America analysts in a note. "The bad news is that the combination of robust demand and a large supply shock makes a strong case for Fed tightening."

(Source: Reuters)

• Bank of Jamaica (BOJ) increased its the policy interest rate, the rate offered to deposit-taking institutions on overnight placements with BOJ, by 50 basis points to 2.00% per annum, effective 17 November 2021. 
• The decision by the Monetary Policy Committee (MPC) was unanimous and was based on its assessment that this action was necessary to limit the second-round effects of recent shocks, such as supply chain disruptions and adverse weather events. The rate increase is meant to guide inflation back within the target range over the next two years, following the breach of the upper limit of the 4.0% to 6.0% target range for 3 consecutive months. Consumer prices increased by 8.5% in the 12 months to October 2021, the highest since September 2014. 
• The reduction in the level of monetary accommodation will cause market-based interest rates to rise further, which will make the returns on Jamaican dollar assets more attractive relative to foreign currency assets. It will also make saving in Jamaican dollars more attractive and borrowing in Jamaican dollars more expensive. These effects are intended to temper the demand for foreign currency and hence moderate the pace of depreciation in the exchange rate. It is also intended to generally, reduce demand in the economy and with it the ability of businesses to pass on price increases to consumers. 
• Inflation is projected to average 5.5% to 6.5% over the next two years. Inflation will continue to breach the upper limit of the Bank’s target range over the next 10 to 12 months at higher rates than were envisaged in the previous forecast and is projected to peak in the range 8.0% to 9.0% over this period. The inflation forecast assumes, inter-alia, the continued transmission of higher international commodity and shipping prices to domestic processed food, food-related services and energy price inflation as well as a recovery in domestic demand.
• While the higher policy rate will help to stem inflationary pressures, it could undermine the nascent economic recovery through a reduction in investments and private consumption. 
• There could be further monetary tightening in the short term as consistent with meeting its inflation target sustainably in the medium term, the MPC agreed to consider further increases in the Bank’s policy rate (and by extension raising real interest rates, which are currently significantly negative) and to maintain or intensify the accompanying measures at subsequent policy meetings. This position is subject to changes in inflation expectations, other macroeconomic data and, consequently, the inflation outlook evolving as projected.

(Sources: BOJ & NCBCM Research)

• The tourism sector, one of the most severely impacted industries during the pandemic, will be a significant driver of economic recovery in 2022. 
• Fitch Solutions expects that most Western consumers’ willingness to travel will increase in 2022, but that demand will be focused on short-haul destinations in the Caribbean and Southern Europe. This will bolster the recovery across tourism dependent countries such as Jamaica, Barbados and Bahamas in 2022. 
• However, tight travel restrictions in China will depress visits to Asian destinations. The agency also expects that EMs like Thailand and the Philippines will experience a very slow, multi-year recovery. 

(Source: Fitch Solutions & NCBCM Research)

• The Saint Kitts and Nevis (SKN) government will run a fiscal surplus of 1.8% of GDP in 2021 and 2.8% in 2022, from a 5.6% of GDP deficit in 2020, as rebounding economic activity drives strong revenue growth and the government limits expenditure growth. 
• Fitch Solutions has revised its 2021 and 2022 fiscal forecasts to 1.8% and 2.8% respectively, from -3.6% and -2.4% previously as revenues have surprised to the upside in the year through June.  
• It is anticipated that rebounding economic activity will drive revenue growth of 20.0% in 2021 and 5.0% in 2022, while reduced spending on goods, services, transfers and subsidies will support a decline in expenditure by 2.0% in 2021. However, a modest uptick in expenditures, including capital expenditure, is expected in 2022 as the government gradually increases expenditure, which was reduced to limit the challenges of the pandemic on fiscal accounts. 
• Fitch also forecasts that total public debt will fall to 32.3% of GDP in 2025, from 42.2% at end-2020, as primary budget surpluses and GDP growth help reduce the debt burden.

(Source: Fitch Solutions)

• U.S. retail sales surged in October as Americans eagerly started their holiday shopping early to avoid empty shelves amid shortages of some goods because of the ongoing pandemic, giving the economy a lift at the start of the fourth quarter. 
• The solid report from the Commerce Department on Tuesday suggested high inflation was not yet dampening spending, even as worries about the rising cost of living sent consumer sentiment tumbling to a 10-year low in early November. Rising household wealth, thanks to a strong stock market and house prices, as well as massive savings and wage gains appear to be cushioning consumers against the highest annual inflation in three decades. 
• Retail sales jumped 1.7% last month, the largest gain since March, after rising 0.8% in September. It was the third straight monthly advance and topped economists' expectations for a 1.4% increase. Sales soared 16.3% year-on-year in October and are 21.4% above their pre-pandemic level.

(Source: Reuters)

• Britain's job market withstood the end of the government's furlough scheme last month, according to data, which could ease lingering concerns at the Bank of England about the risks of raising interest rates from their pandemic low. 
• The Sterling strengthened as the number of staff on businesses' payrolls in October rose to 0.8% above levels in February 2020, before the coronavirus pandemic hit, and increased by 160,000 on the month. 
• The Bank of England has been watching closely in case unemployment rose after the job-protecting furlough scheme expired at the end of September. 
• "Now that today's labour market data shows that hurdle has been cleared, we think the Bank of England has the green light for interest rate lift-off at their December meeting," Ambrose Crofton, a global market strategist at J.P. Morgan Asset Management, said.

(Source: Reuters)

• Spurred primarily by a rise in the index for Food and Alcoholic Beverages, the All-Jamaica Consumer Price Index (CPI) rose to 116.0 in the month of October (+1.0%). October’s outturn meant that inflation was 8.5% in the 12 months to October 2021 relative to the 8.2% reported in September 2021. Consumer prices have risen for 6 straight months and this is the third consecutive month that inflation has fallen above BOJ’s target range. 
• A 2.5% increase in the heavily weighted index for the “Food and Non-Alcoholic Beverages” division was a major contributor due in part to 6.8% increase in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. 
• An increase in the index for the division ‘Transport’ (0.3%) also contributed to the rise in inflation. However, this was tempered by a decrease in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’ (0.5%). 
• Inflation is projected to average between 5.5% and 6.5% over the next two years, above the previous projection of 4.8% according to the BOJ. The inflation projection is driven primarily by a gradual rise in core inflation, supported by the lagged impact of higher international grains and shipping prices, a recovery in domestic demand and a temporary jump in inflation expectations. 
• The BOJ will make its next policy decision today, November 16, 2021 and is widely expected to raise its benchmark rate given the rise in consumer prices. This monetary policy tightening would be aimed at containing the rise in consumer prices and inflation expectations. That being said, the BOJ will have to weigh monetary policy tightening against the adverse impact that this could have on the fledging economic recovery. 
• The BOJ has already increased its benchmark interest rate 50 basis points, which came into effect October 1, 2021. The BOJ’s hawkish stance contrasts with that of central banks in developed markets, such as Canada, the UK and the US, which have been focused on delaying raising rates until the slack in their economies is absorbed. Policy makers in these countries view the rise in inflation as transitory, though they have admitted recently that it is likely to persist longer than they initially expected.

(Source: STATIN and NCBCM Research)

• Jamaica is expected to welcome 1.5Mn visitors by December 31, with estimated earnings of US$1.9Bn. This was noted by Director of Tourism, Donovan White, at a Jamaica Tourist Board (JTB) media briefing, held at Moon Palace Resort in St. Ann, on November 10. 
• There has been an uptick in the length of stay of visitors to the destination, since Jamaica reopened, from 7.1 days to eight days, and average visitor spend from US$169 per day per visitor to US$180. This has allowed the Ministry to forecast their revenue projections to just under US$2.0Bn for the calendar year. 
• This improvement has allowed JTB to reforecast when it believes the destination will return to pre-COVID levels of performance, highlighting that it sees that happening round about third quarter of 2023. 
• White said it is expected that by the end of 2023, Jamaica will welcome 4.1Mn visitors, split between 2.5Mn stopovers and 1.6Mn cruise passengers, with a revenue out-turn of about US$4.2Bn in earnings. 
• He noted that in 2019, Jamaica had 4.2Mn visitors, and US$3.7Bn in earnings. He then highlighted that if you go forward to 2023, where they are saying 4.1Mn visitors, but US$4.2Bn in earnings, there’s an uptick of about half a billion dollars in earnings that is anticipated. This, he said, is coming from what they are seeing in the average spend per visitor as well as the length of stay. 
• The growing number of visitors is being aided by recovery in several segments of the tourism industry including the return of cruise activity to Jamaican ports. A contributor to recovering cruise activity is the recent return of Carnival Corporation’s Emerald Princess to the coastal town of Falmouth, Trelawny, Jamaica’s largest port, with some 2,780 passengers and crew members, on Sunday, November 14.

(Source: JIS News & NCBCM Research)

• Fitch Solutions will be watching Q3 2021 GDP releases in Chile, Colombia and Peru this week for an indication of the state of the economic recovery throughout Latin America. 
• In particular, Chile and Peru have rebounded at a faster pace than other markets throughout the region due to a substantial fiscal stimulus, a series of pension withdrawal measures and robust demand for exports, resulting in 18.1% and 41.9% growth respectively, in Q2 2021. 
• While Colombia has grown at a somewhat slower pace, the lifting of public health restrictions has powered a swift recovery in the labour market and supported private consumption on the way to 17.6% growth in Q2. 
• While growth in all three economies will certainly decelerate in y-o-y terms through the end of 2021 and into 2022 as base effects fade, all three will likely have regained their pre-pandemic levels of output by mid-2022. Fitch expects this will allow their respective central banks to continue to raise their policy interest rates throughout 2022 in response to elevated inflation.

(Source: Fitch Solutions)

• Fitch Solutions forecasts real GDP in the Bahamas will grow by 1.5% in 2021 and 4.8% in 2022 as public health restrictions loosen and the tourism sector recovers.  
• The tourism sector’s recovery in 2022 will drive growth in exports and job creation, which will boost domestic private consumption. 
• A possible fourth wave of COVID-19 cases and elevated public debt levels pose downside risks to the economic recovery. 
• The sovereign is also facing fiscal challenges which has resulted in a recent downgrade in its rating. On November 12, 2021, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on the Commonwealth of The Bahamas to 'B+' from 'BB-', while at the same time, changing the outlook on the rating to stable from negative. The downgrade reflects the failure of successive governments to implement timely and effective reforms that have weakened public finances, created a high debt burden, and increased funding pressures.

(Source: Fitch Solutions and Standard & Poors)