• Eleven markets in Latin America will be publishing CPI prints this week, including Chile, Colombia, and Mexico. Base effects, due to the collapse in prices in Q2 2020, will be the primary driver of higher prices in April, though currency weakness, rising energy prices, and supply chain bottlenecks will likely contribute as well.
• Fitch Solutions expects that regional central banks will pay close attention to the rate of inflation acceleration in the next several CPI prints as they consider whether to tighten monetary policy in 2021. In Q1 2021, several major markets saw inflation rise past the mid-point of their central banks’ target range.
• Latin American central banks began aggressively loosening monetary policy in Q2 2020 in order to support credit growth as the region suffered the worst contraction in the global economy. Fitch Solutions does not forecast that any major central banks, outside of Brazil, will enact rate hikes in 2021. However, should inflation accelerate significantly in the months ahead, policymakers would likely be forced to tighten monetary policy, potentially leading to a slower economic recovery than current forecasts.
• In addition, Fitch Solutions has previously highlighted how rising bond yields in the US are eroding the relative attractiveness of Latin American assets. An increase in inflation in the region could exacerbate this trend, causing investors to demand even higher yields as rising prices erode the value of fixed returns. Higher borrowing costs would, in turn, weigh on investment and reduce regional governments' fiscal flexibility.

(Source: Fitch Solutions)

• Colombia's peso, public debt, and stocks depreciated on Monday after President Ivan Duque withdrew a tax reform proposal seen as important for the country's fiscal stability, sparking market uncertainty and comment from rating agency Moody's.
• Duque withdrew the proposal on Sunday after staunch opposition from lawmakers and deadly street protests, but he said tax reform is still necessary and that a new proposal will be made with consensus among business leaders, political parties, and civil society. 
• The withdrawn proposal, originally intended to raise more than $6 billion in revenue, would have increased taxes paid by individuals and businesses, expanded sales taxes, and eliminated exemptions and deductions.
• The Colombian currency fell 1.4% to a six-month low of 3,804.95 pesos per dollar. Since the tax proposal was sent to Congress on April 15, the peso has depreciated 5.3%. Considering the withdrawal of the proposal, the cessation of the social unrest will likely influence some positive movement in the currency.
• However, the government will have to find alternative solutions to provide funding to finance its operations and pay down its debt.

(Source: Reuters & NCBCM Research

• The U.S. economy is poised to grow at the fastest rate in decades this year as it rebounds from the crisis caused by the coronavirus pandemic, but financial conditions are nowhere near the level where the Federal Reserve would consider pulling back its support, New York Fed Bank President John Williams said on Monday.
• U.S gross domestic product could increase by around 7% this year after adjusting for inflation, bringing in the fastest growth since the early 1980s, Williams said. But that boom may not be enough to achieve the Fed's dual mandate for inflation and maximum employment, Williams said.
• "It's clear there is a big shift in the economy, and the outlook has improved," Williams said during a virtual event. "But let me emphasize that the data and conditions we are seeing now are not nearly enough for the FOMC to shift its monetary policy stance."
• Fed officials agreed last week to keep interest rates near zero and to continue purchasing $120 billion a month in bonds until there is "substantial further progress" toward the Fed's goals for maximum employment and inflation.
• The labor market is still short about 8.5 million jobs compared to pre-pandemic, and the job losses fell hardest on service sector workers and Black and Hispanic workers, he said. "This means we will need big job numbers for some time to fully get the country back to work," Williams said. While inflation may rise in the near term as prices rebound from the low levels of last spring, it is likely to come back down to about 2% next year, Williams added.

(Source: Reuters)

• Oil prices settled higher Monday, supported by renewed bets on a recovery in energy demand as the U.S. reopening picks up speed ahead of the summer driving season.
• On the New York Mercantile Exchange, crude futures for June delivery rose 1.43% to settle at $64.49 a barrel, while on London's Intercontinental Exchange, Brent rose 1.22% to trade at $67.58 a barrel.
• "Crude oil prices rallied as signs of further strength in demand continue to emerge. The emergence of several US cities from lockdown is stoking confidence of stronger demand in gasoline ahead of the key US summer driving season," ANZ Research said in a note.
• The renewed optimism ahead of the summer driving season, a period in which gasoline demand is typically at its seasonal peak, is helping to offset concerns over a strong record of daily Covid-19 infections in India, the third latest oil-consuming country.
• The upbeat start to the month for U.S. oil prices comes after a 13% rally last month despite lingering concerns over the increase in Iranian production. Over the weekend, Iran said it expects to export as much as 2.5 million barrels of oil should nuclear deal talks with the U.S. and other nations lead to the removal of restrictions against the Islamic Republic.

(Source: Investing.com

• For the first quarter ending March 2021, Caribbean Cement (CCC) reported a net profit of $1.53Bn (EPS: $1.79), which translates to a 215.9% increase over the $483.10Mn (EPS: $0.57) earned over the same period in 2020. This was due to a 31.2% (or $1.42Bn) increase in revenues, which management attributed to an increase in the demand for cement during the period. The company was able to achieve record production of more than 100,000 metric tonnes of cement in March.
• The sector was already showing momentum during the latter half of 2020, with two consecutive quarters of growth (Q3: 7.2% & Q4: 6.2%), when most of the sectors in the goods-producing industry contracted consistently due to the impact of the pandemic.
• The government has expressed plans to ramp up expenditure on infrastructure during the 2021/22 fiscal year, and there are various residential, commercial, and hotel expansion projects planned for this year, which should help to sustain demand for CCC’s products.
• The improvement in the company’s operating performance was also influenced by its cost-containment measures, which resulted in operating expenses declining by $69.37Mn (or 10.6%) to $582.01Mn.
• Caribbean Cement’s stock price has appreciated by 40.7% since the start of the year, and currently trades at a P/E of 17.7x earnings, which is below the main market industrials and materials sector average of 18.5x earnings.

(Source: Caribbean Cement Company Financials)

• Fitch Solutions believes the surge in COVID-19 cases in Q1 2021, and the resulting lockdowns, will weaken Jamaica’s economic recovery and undermine support for the ruling Jamaica Labour Party government.
• The length of the lockdown is expected to pare back some of the gains made in the Jamaican labour market during the second half of 2020. The country’s unemployment rate fell to 8.9% in Q4 2020 from 12.6% in Q2 2020, but will likely return to double digits amid the months-long lockdown.
• The country’s slow vaccination programme will likely extend the economic impact of the pandemic, as only 4.5% of Jamaica’s population had received at least one dose of the COVID-19 vaccine, and the government’s supply agreements would vaccinate only 16.0% of the population. As a result, Fitch Solutions believes Jamaica will fail to reach herd immunity until 2022.
• It also believes that an increase in violent crime, on top of Jamaica’s regional leading homicide rate, will also weigh on public approval for the JLP. The country’s homicide rate was 3.5% higher year-over-year (YoY), despite the restrictions on mobility seen in Q1 2021. In response to the uptick in violence, the Private Sector Organization of Jamaica (PIOJ) publicly called for the government to pass additional security legislation. This pressure could push the government to increase spending on policing, potentially limiting its ability to maintain higher social spending in the quarters ahead.
• Despite a potential decline in public support, the agency believes the JLP government will be able to pursue significant fiscal consolidation in the medium term due to its large parliamentary majority.

(Source: Fitch Solutions)

• Brazil’s Treasury on Thursday slashed its 2021 debt forecast although it said debt will still continue to creep higher in the coming years, the same day it reported a surprise government surplus for the month of March.
• Treasury now sees total government debt ending this year at 87.2% of gross domestic product, significantly down from a previous estimate of 96.7% in its last long-term outlook published in October.
• Nominal GDP growth and cash transfers to the Treasury brought forward from state-owned banks will improve the short-term outlook, but will not outweigh rising interest rates and sustained primary deficits over the longer term.
• If accurate, the new forecasts would mean last year’s debt of 88.8% of GDP would be the record high for Brazil’s debt. In the first quarter of the year the government ran a surplus of 24.4Bn reais, compared with a 2.9Bn reais deficit in the same period last year. The swing was due to a 7.6% increase in revenue, in real terms.

(Source: Reuters)

• Mexico's public finances could handle higher interest rates, a senior finance ministry official said on Thursday as the country faces an uptick in price pressures that have taken inflation significantly above the central bank's target rate.
• "There's scope to support, were it to occur, increases in interest rates without pressuring public finances," said Ivan Cajeme Villarreal, head of economic planning at the ministry. Villarreal was speaking at a news conference on public finances in which Deputy Finance Minister Gabriel Yorio said the recent rise in inflation did not appear permanent.
• Inflation accelerated faster than expected in the first half of April to 6.05%, up from 3.15% in 2020, the highest level in more than three years. The central bank targets a rate of 3% and has a one-percentage point tolerance range above or below that, so the jump in inflation has encouraged speculation that the bank may have to raise interest rates above its current level of 4%.
• However, a rise in interest rates could slow the country’s pace of recovery as higher rates disincentivize borrowing for consumption or investment purposes.

(Source: Reuters & NCBCM Research)

• U.S economic growth accelerated in the first quarter as the government gave money to mostly lower-income households, fueling consumer spending and setting the course for what is expected to be the strongest performance this year in nearly four decades.
• The government largesse also extended to businesses, especially in the high-contact services industry. The massive fiscal stimulus and easing anxiety over COVID-19, with all adult Americans now eligible for a vaccination against the virus, have resulted in a faster economic rebound in the United States compared to its global rivals.
• The second-fastest gross domestic product growth since the third quarter of 2003, reported by the Commerce Department on Thursday, left output just 0.9% shy of its level at the end of 2019. Economists expect a full recovery from the pandemic recession, which started in February 2020, in late 2023.
• GDP increased at a 6.4% annualized rate last quarter, the government said in its advance estimate for the first three months of the year. That followed a 4.3% growth rate in the fourth quarter. It was the biggest first-quarter increase in growth since 1984. Economists polled by Reuters had forecast GDP growth would increase at a 6.1% pace in the January-March period.

(Source: Reuters)

• The Bank of England is likely to ease its foot off the stimulus pedal and reduce its pace of bond purchases next week as Britain's economy appears to be bouncing back sharply from its COVID pandemic slump.
• Retailers and restaurants are reopening, retail sales exceeded pre-pandemic volumes in March and purchasing managers' indexes in April hit their highest since 2013 as a rapid vaccination program helped reduce a devastating flood of COVID-19 cases at the start of the year to a trickle.
• Just over three months ago, financial markets saw a roughly 50% chance that the BoE would need to cut interest rates below zero for the first time later this year. Now speculation has turned to whether its Monetary Policy Committee will begin to raise rates from their current 0.1% towards the end of 2022.
• A first step is likely to come next week if the BoE slows its government bond purchases from the current pace of 4.4 billion pounds ($6.14 billion) a week, according to economist Phillip Shaw and several other economists.

(Source: Reuters)