• Fitch Ratings has downgraded Panama's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BBB-' from 'BBB' and assigned a negative rating outlook.
• The downgrade reflects the severe weakening of public finances due to the economic disruption caused by the coronavirus pandemic, which has exacerbated underlying weakening fiscal trends predating 2020.
• The unprecedented GDP contraction and government revenue loss have prompted a material rise in public debt (estimated to have risen to 68% of GDP in 2020 from 46.4% in 2019).
• The negative outlook reflects risks to the government debt trajectory and uncertainty that the fiscal consolidation path set out in the revised Fiscal Responsibility Law can be achieved, given underlying fiscal challenges.
• A prolonged pandemic and delays in vaccination distribution are the main risks to the economic recovery, which will underpin fiscal consolidation over the coming years.

(Source: Fitch Ratings)

• Mexico’s central bank is likely to wait until after April to consider further interest rate cuts, Deputy Governor Jonathan Heath said in an interview published Wednesday.
• Heath, who is on the dovish wing of the five-member board, pushed unsuccessfully to cut rates by a quarter-point to 4% at the bank’s last two meetings. Instead, the bank paused a record cycle of 11 straight cuts.
• At the bank’s next meeting on Feb. 11, the discussion will center on whether a window of opportunity has reopened to continue the accommodative cycle, or if the pause should be sustained because inflation is starting to climb again slightly.

(Source: Bloomberg)

• Oil prices rose for the third day in a row on Wednesday as the U.S. government reported a second straight weekly drawdown in crude stockpiles against market analysts’ consensus for an inventory build.
• The broad two-month-long rally in oil prices has convinced physical crude traders to cash in more of the barrels in their hold, rather than store them, despite a slack in demand for fuel products caused by sluggish traffic recovery from the coronavirus pandemic.
• New York-traded West Texas Intermediate, the key indicator for U.S. crude, climbed 93 cents, or 1.7%, to settle at $55.69 per barrel. WTI has risen about 6% since Friday’s settlement of $52.50.
• London-traded Brent, the global benchmark for crude, settled up $1, or 1.7%, at $58.46. Brent has actually risen four days in a row, gaining about 5% since Thursday’s settlement of $55.53.

(Source: Yahoo Finance)

• The coronavirus pandemic should ease over the first half of the year and give way to "very strong" U.S. economic growth during 2021, St. Louis Fed President James Bullard said on Wednesday.
• "The health crisis will wane in the months ahead" as more people are vaccinated, Bullard said. As it does, families will be able to tap an "exceptionally high" level of savings and financial resources in hand after a year in which government programs pumped trillions of dollars into the economy.
• Bullard's bullish outlook suggests the U.S. unemployment rate could fall from the current 6.7% to as low as 4.8% "in the months ahead." That is higher than the 3.5% seen before the pandemic, but less, Bullard noted, than the median of 5.6% in the period after World War II.

(Source: Reuters)

• The Producer Price Index for the Mining and Quarrying industry increased by 1.3% for December 2020, while the index for the Manufacturing industry increased by 0.9% as released in the December 2020 Bulletin by the Statistical Institute of Jamaica (STATIN).
• The movement in the index for the Mining and Quarrying industry was influenced mainly by a 1.3% increase in the index for the major group ‘Bauxite Mining & Alumina Processing’.
• The main contributors to the increase in the index for the Manufacturing industry were the major groups, ‘Refined Petroleum Products’ which moved up by 5.3%, ‘Food, Beverages & Tobacco’ up by 0.1% and ‘Other Non-Metallic Mineral Products’ up by 0.5%.
• For the period December 2019 – December 2020, the point-to-point index for the Mining & Quarrying industry decreased by 3.3%, due mainly to a decline of 3.5% in the index for the major group 'Bauxite Mining & Alumina Processing’. The Manufacturing industry on the other hand increased by 1.1%.

(Source: STATIN)

• Despite the pandemic and its impact on major source markets, local remittances continued to be buoyant increasing 25.7% or US$45.2Mn to US$220.9Mn in November 2020 relative to November 2019. This increase resulted from an increase in gross remittance inflows of 18.7% or US$37.5Mn, augmented by a 32.0% or US$7.7Mn decline in outflows.
• The increase in gross remittance inflows was attributable to an improvement of 23.5% in inflows via Remittance Companies, partially offset by a decline in Other Remittances of 2.4%.
• The largest source market of remittance flows to Jamaica for November 2020 was the USA, accounting for 68.1%, up from the 64.2% recorded for November 2019.
• Other source countries that contributed a notable share of remittances for the month were the UK at 11.6%, followed by Canada and the Cayman Islands with 10.2% and 6.1%, respectively.
• For the period April to November 2020, net remittance inflows increased by 30.8% or US$446.2Mn to US$1,892.6Mn relative to the previous corresponding period.

(Source: BOJ)

• Fitch Solutions expects Latin American governments will run structurally wider fiscal deficits following the economic shock of the COVID-19 pandemic as governments seek to avoid unpopular cuts to public spending.
• Among Latin America’s largest markets, it expects that Colombia and Peru will adopt a higher-spending model in the medium term, because of rising demands for public provision of social services.
• Most governments across the region will enjoy low borrowing costs and robust access to financing over the coming quarters, underpinning the agency’s view for an extended period of wider deficits.

(Source: Fitch Solutions)

• Fitch Solutions believes the election of Brazil President Jair Bolsonaro's favored candidates to the leadership of Congress will reduce near-term risks to his administration's stability.
• However, it remains downbeat on the outlook for fiscal reforms, particularly given a focus on enacting additional emergency aid over the coming weeks.
• Market pressure could spur legislators to become more supportive of fiscal reforms, although it anticipates volatility in sentiment over the coming months.

(Source: Fitch Solutions)

• Excess liquidity in the short-term U.S. lending market recently knocked overnight interest rates to almost zero, and risks pushing the federal funds rate into negative territory, a scenario that could cause disruptions in money markets.
• The fed funds rate is the rate banks charge each other for overnight loans to meet reserves required by the Federal Reserve.
• A sub-zero effective fed funds rate would imply that banks are willing to pay to lend funds to each other, and indicate the market expects the Fed to take interest rates below zero. Even if negative rates are a long shot, analysts said low short-term rates are not ideal either as they suggest a potentially deflationary environment.
• That being said, the Fed has tools to lift short-term rates, such as raising the rate it pays banks for excess reserves parked at the central bank. The so-called IOER (interest on excess reserves) rate also influences the fed funds target. Analysts said if the fed funds rate falls below 0.05% for consecutive sessions, a Fed response is likely to follow.

(Source: Reuters)

• As the White House and Congressional Democrats press for a $1.9 trillion pandemic relief package that many Republicans say is more than what the country needs or can afford, Federal Reserve policymakers are also split on the issue.
• Dallas Fed President forecasts that as vaccines get rolled out and more businesses can reopen, the U.S. economy will likely grow about 5% this year, enough to push unemployment down to 4.5%, from 6.7% in December.
• That forecast, he said, assumes no further fiscal relief, except what may be needed to ensure there's enough money to vaccinate people and reopen schools, and for the unemployed to make ends meet - an amount he didn't quantify.

(Source: Reuters)