• If the Israel-Hamas war were to expand into a regional conflict and have a meaningful impact on global oil prices, it would place pressure on inflation rates in Latin America and likely delay or reverse rate-cutting cycles.
• However, compared to other regions of the world, Fitch believes that Latin America is relatively insulated from the impacts of the ongoing disruptions to trade in the Red Sea. 
• This is so, as virtually none of the region’s trade travels through the Suez Canal or the Red Sea, as its major partners – the US, Europe, and Mainland China – are directly accessible across the Atlantic and Pacific oceans.
• Notwithstanding, Latin America is vulnerable to a spike in oil prices due to a potential regionalisation of the Israel-Hamas war. Furthermore, if a spike in oil prices were to happen, Latin America, like every other region in the world, would see a notable inflationary impact.
• Finally, Fitch does not expect much of a political impact in Latin America from the conflicts in the Middle East, despite divisions over the Israel-Hamas war.

(Source: Fitch Solutions)

• After a brief decline in December and January, mortgage rates are on the rise again. The average contract interest rate for 30-year fixed-rate mortgages increased to 6.87% from 6.80% the previous week, marking the highest rate since early December 2023.
• The increase in mortgage rates is affecting mortgage demand, with total mortgage application volume falling by 2.3% compared to the previous week, and both applications for home purchases and refinancing showing declines.
• Applications to refinance a home loan dropped by 2.0% for the week but were still 12.0% higher than the same week one year ago. Despite rates being half a percentage point higher than a year ago, recent rate drops from a 20-year high have prompted some borrowers to seek savings through refinancing.
• Purchase applications for mortgages to buy homes decreased by 3.0% for the week and were 12.0% lower than the same week a year ago. Affordability challenges, elevated mortgage rates, and low existing housing inventory are cited as factors contributing to the subdued purchase activity in the housing market. Harsher winter weather is also noted as a factor limiting house hunters' activities.
• Additionally, a recent government report on inflation causing rates to surge even higher is highlighted, with the average rate on the 30-year fixed reaching 7.08%, leading to immediate reactions in the bond market and prompting mortgage lenders to raise rates.

(Source: CNBC)

• The Congressional Budget Office (CBO) director, Phillip Swagel, cautioned House lawmakers about the growing national debt and the potential existential threat it poses to the U.S. economy.
• The CBO's semi-annual report indicated that the U.S. yearly budget deficit is expected to increase by an estimated US$1.0Trn over the next decade, reaching US$2.6Trn in 2034. Net interest costs are predicted to surpass non-defense discretionary spending by 2024, climbing to 3.9% of GDP in 10 years.
• Swagel attributed the rising national debt to factors such as high interest rates, an ageing population, and increased federal healthcare costs. The projected debt is set to reach a record 116.0% of GDP by the end of 2034, potentially impacting social security benefits.
• Republicans on the committee welcomed findings indicating that the Fiscal Responsibility Act of 2023 helped marginally reduce the deficit. The bipartisan bill, negotiated by former GOP House Speaker Kevin McCarthy, linked raising the debt ceiling with federal spending caps.
• Democrats, like Dan Kildee from Michigan, emphasised the need for changes to the tax code to generate more revenue and criticised previous tax cuts. Swagel highlighted the CBO report's key finding that increased immigration could positively impact the U.S. economy, contributing to GDP growth and additional tax revenue over the next decade.

(Source: CNBC)

• The Planning Institute of Jamaica (PIOJ), launched the Inclusive Growth Index Framework (IGIF), a comprehensive measurement tool for growth.
• The index, developed by the PIOJ’s Growth Inducement Programme (GIP), provides a more comprehensive understanding of the inter-relatedness of key drivers of growth specific to Jamaica.
• In his remarks at the virtual launch, Director General, of PIOJ, Dr. Wayne Henry, said the IGIF encapsulates critical focus areas, including equality and equity, health, human capital, environmental quality, social protection, safety and security, and wealth.
• "By consolidating indicators relevant to Jamaica into key sub-indices on a composite index, the IGIF provides a comprehensive basis for measurement tracking and in-depth analysis, offering valuable insights for the creation of policy responses and proactive initiatives tailored to our people's diverse needs," Dr. Henry said in a statement.
• He noted that the launch marks a significant milestone in Jamaica’s development, as the PIOJ officially presents a powerful new tool that was created to significantly increase Jamaica’s ability to achieve the goals and targets outlined in Vision 2030, Jamaica’s national development plan, to attain improved economic and social outcomes for all.
• While acknowledging the existence of global indices such as the United Nations Development Programme’s Human Development Index, the IGIF distinguishes itself by being tailored to Jamaica’s specific situation. "It recognises the critical importance of internal nuances in shaping a nation's development path, balancing external benchmarking, with the unique characteristics that make each country distinct," Dr. Henry added.
• The output of the IGIF will serve a wide cross-section of policymakers, economists, researchers, journalists, and all who impact or are impacted by Jamaica’s economy in a detailed, refined, and proactive way.

(Source: JIS)

• Despite recording an 18.6% improvement in its bottom line over the quarter, earnings s declined by more than 50.0% in the nine months to December 2023.
• Revenues over the quarter declined by 2.5% yoy. This was due to the continued decline in revenues from all core services, and contribution from the new service was insufficient to offset the reductions.
• Consolidated expenses for the quarter totaled $476.02Mn compared with $482.86Mn, a decrease of 1.4%. The improvement in expenses was underpinned by lower Administrative expenses, which decreased by 11.8%, a result of the efforts to control expenses. However, the results were tempered by higher selling and Promotions, which rose by 20.5%, reflecting increased support for the services over the comparable three-month period.
• Although certain measures were implemented in the first quarter to control administrative costs for the financial year, there has been a general increase in marketing activity to promote all of the company’s services to improve the pace of growth in sales.
• During the quarter, the company launched its LASCO MoneyGram Direct “Size Matters” campaign. This MoneyGram service will allow the sender to opt for cash pick up at a LASCO agent, for which the receiver is paid at a higher rate of exchange. This campaign will be continued into the coming periods and will be ramped up to achieve certain key objectives.
• However, a combination of higher operating expenses and weak revenues resulted in the sharp falloff in the nine months earnings. Operating expenses were up 7.6% due to higher administrative costs and selling and promotion expenses. This was exacerbated by the 2.9% reduction in revenues over the period.
• LASF’s stock price has increased by 6.3% since the start of the calendar year. The stock closed Monday’s trading session at $2.04 and currently trades at a P/E of 21.9x which is above the Junior Market Financial Sector Average of 18.3x.

(Sources: JSE & NCBCM)

• As previously expected, the Banco Central de Reserva del Peru (BCRP) cut its policy interest rate from 6.50% to 6.25% on February 8.
• Notably, headline inflation has continued its strong decline in January, coming in at 3.0% year-over-year (y-o-y) from 3.2% in December, and 3.6% in November. This puts inflation just at the upper end of the BCRP’s target range (1-3%). 
• While Fitch maintains that inflation will hover around the 3.0% mark through 2024, the agency has lowered its forecast for average inflation slightly from 3.2% to 3.1% and will see headline figures dipping below the upper tolerance band throughout the year. 
• Further to this, Fitch Solutions and the BCRP expect inflation to continue easing next month, and Fitch is currently forecasting a 25 basis point (bps) cut in March.
• Although inflation data has been very auspicious, which may encourage a larger cut, it is believed that the Central Bank will remain relatively cautious.
• Real interest rates remain high for now, and with 12-month inflation expectations falling lower than the 3.0% target, the BCRP is expected to bring the policy rate down to 4.50% by the end of the year.

 (Source: Fitch Solutions)

• Fitch Solutions has raised its regional 2024 real GDP growth forecast for Latin America from 1.5% in late November 2023 to 1.6%. This increase has been almost exclusively driven by upward revisions in two markets, Brazil (from 1.4% to 1.6%) and Mexico (2.0% to 2.5%), that mask downward revisions in other markets (Argentina, Panama, Peru, etc.).
• Furthermore, these revisions track with generally disappointing economic data in the region in recent months. The Citi Latin America Economic Surprise Index fell to -12.8 in January, implying the data was worse than expected by consensus. This is also the lowest reading since January 2022 and down from 43.6 as recently as September 2023.
• Notably, the GDP-weighted aggregate shows economic activity lost steam in late 2023, suggesting the regional economy entered 2024 on a fairly weak footing.
• Notwithstanding, PMI data in Latin America is limited to Brazil, Colombia, and Mexico. However, this data shows a sharp improvement in the manufacturing sector in January, shooting above the 50.0 threshold that separates expansion from contraction.
• Furthermore, as expected, inflationary pressures moderated significantly in 2023, with the regional aggregate figure dropping below 5.0% y-o-y in June. However, in the months since the decline, prices have stagnated, with price growth remaining stubbornly above its long-term average. With prices remaining well above target across the board, Central Banks in the region will have to be judicious in implementing further rate cuts.
• Finally, the labour market remains a key point of strength in Argentina, Brazil, and Mexico. While the Q4 2023 print is likely to show a deterioration in Argentina, the latter two have benefited immensely from tight labour market conditions that have boosted private demand in recent quarters.

(Source: Fitch Solutions)

• The U.S. federal budget deficit fell sharply in January to $22Bn as receipts hit a record for that month, partly because tax refunds fell after the Internal Revenue Service (IRS) cleared a backlog of pandemic-delayed tax returns, the Treasury Department said on Monday.
• Last month's deficit was $17Bn, or 43%, less than the $39Bn deficit in January 2023. Outlays for the month grew 3% to $499Bn, while receipts jumped 7% to $477Bn.
• This January's comparison with a year ago was also significantly helped by the $36Bn bailout of a Teamsters Union pension fund in January 2023, as no similar large one-time outlays were recorded this year. For the first four months of the fiscal year, the deficit rose $72Bn, or 16%, to $532Bn as costs to service the national debt rose, as did outlays for Social Security, Medicare, and military programs.
• Individual tax refunds, which are deducted from receipts, were $15Bn lower in January than during January 2023. The IRS last year adopted new scanning technology to enable it to process paper returns more quickly. Individual withheld receipts in January, benefiting from strong employment trends, were up $20Bn, or 7%, from a year earlier.
• The Treasury's interest cost on the public debt grew $18Bn, or 35%, in January compared to a year earlier due to a higher weighted average interest rate now at 3.15%, as well as higher debt levels. For the fiscal year to date, debt interest costs were up $96Bn, or 37%, to $357Bn, outpacing outlays for Medicare.
• The Treasury also reported higher costs for military programs due to expenditures for military personnel operations and maintenance. For the first four months of fiscal 2024, these were up $32Bn, or 13%, to $283Bn.

(Source: Reuters)

• Eurozone wage growth is likely to peak early this year, but the path further ahead remains uncertain, a new forecasting tool developed by the European Central Bank showed on Friday.
• The ECB has singled out wages as the most important variable in determining whether it can start cutting interest rates and call time in the fight against high inflation.
• Its new wage tracker, detailed for the first time in a paper published on Friday, showed growth in compensation hitting a peak at around 5% early this year.
• However, the jury was still out on whether and how quickly pay rises would fall back towards the 3% level the ECB considers compatible with its 2% inflation goal. "Negotiations over the first quarter of 2024 are likely to be decisive for the development of wage pressures over 2024," the authors of the paper wrote.

(Source: Reuters)

• Tropical Battery Company Limited acquired Rose Electronics Distributing Company (Rose Batteries), based in San Jose, California (Silicon Valley). Founded in 1963, Rose Batteries is a manufacturer of specialized batteries for high value industries requiring critical power, including healthcare, robotics, aerospace, and telecommunications.
• The acquisition of Rose Batteries represents a significant milestone in Tropical Battery’s strategy of diversification into new complementary product lines, market segments, and geographies, and reaffirms the company’s commitment to technological innovation and growth in the global energy market.
• The acquisition was completed through Tropical’s US subsidiary - Tropical Battery USA LLC. “This acquisition reaffirms our commitment to transforming Tropical Battery into a multinational organization at the vanguard of innovative growth in emerging segments driving the transition to more sustainable energy solutions,” commented Tropical Battery Managing Director Alexander Melville. 
• Listed on the Jamaica Stock Exchange in 2020, Tropical Battery has diversified beyond its core car battery business into automotive care products, renewable energy, and electric mobility as part of its transformation into a diversified energy group enabling sustainability with innovation, technology and exceptional service delivery.
• Tropical Battery’s stock price has appreciated by 24.6% since the start of the year and currently trades at a P/E of 17.11x earnings, which is above the junior market distribution sector average of 16.60x earnings.

(Sources: JSE & NCBCM Research)