• Chile's gross domestic product fell 0.6% in the second quarter of 2024 (Q2 2024) compared with Q1 2024, according to data released by the country's central bank.
• The 6% decline aligns with market expectations and is likely to open room for the central bank to deliver more interest rate cuts through the end of the year, economists say. Last month, the local monetary authority kept its benchmark rate on hold at 5.25% following eight cuts in a row since July 2023.
• According to the bank, the quarterly GDP drop was a result of weaker activity in mining, services and manufacturing in the world's largest copper producer, where mining GDP fell 1.0% on a sequential basis. The result marked a steep deceleration from the revised 2.1% quarter-on-quarter growth reported in Q1 2024, which also set a strong comparison base for Q2 2024.
• Chile's economy had been regaining ground after facing a sharp economic downturn in 2023, which followed a rapid post-pandemic recovery that generated inflationary pressures and led the central bank to hike rates. However, as inflation receded, the bank lowered borrowing costs by a total 550 basis points since July 2023 to the current 5.75%.
• "The fall in Chilean GDP in the second quarter is mainly payback for a strong first quarter, and we expect a return to positive growth in the third quarter," Capital Economics' emerging markets economist Kimberley Sperrfechter said. Still, "the weakness shown in the second quarter means that there's scope for the central bank to deliver two more 25-basis-point interest rate cuts, to 5.25% over the remainder of this year," she added.

(Source: Reuters)

• Grenada has become the first country in the world to use a so-called hurricane clause in a government bond, a special feature that allows authorities to postpone debt payments in the wake of a major natural disaster.
• The move comes after hurricane Beryl wrought destruction in parts of the Caribbean last month, including in Grenada where Prime Minister Dickon Mitchell estimated it had caused damage equivalent to roughly a third of its annual economic output.
• In a notice to the holders of one of its only international bonds, the Grenadian finance ministry said it had "elected to make a Deferral Claim as a result of the Event", adding the "modelled loss" to the economy from Beryl was greater than US$30Mn.
• It means Grenada will not make the bond's next scheduled payments due on Nov. 12 and May 12 next year, which combined add up to just over US$12.5Mn. Instead, the money will be added to the US$112Mn bond's subsequent lump sum "principal" payments until the end of its term in 2030. The move, which will also see Grenada defer roughly another US$5Mn made up of a bilateral loan from Taiwan and two other smaller loans, is a landmark step.
• It is the first time a country has triggered a natural disaster clause and Grenada was the first to include one back in 2015 after a previous hurricane led to two debt restructurings in the space of a decade.
• Fellow Caribbean island Barbados followed suit with its version in 2018 although that, and some alternatives including a "catastrophe bond" in Jamaica, have not been triggered in the wake of Beryl. That said, these kinds of clauses are expected to become increasingly widely used as climate change leads to more frequent and intense storms like Beryl.

(Source: Reuters)

• The U.S. Federal Reserve is expected to cut interest rates by 25 basis points at each of the remaining three meetings of 2024, one more reduction than predicted last month, according to a slim majority of economists polled by Reuters who said a recession is unlikely.
• Over a third, 34 of the economists polled, predicted two rate cuts this year, while eleven expected the Fed to cut rates by 100 basis points (bps) or more.
• The higher rate cut expectations follow a weaker-than-expected July U.S. jobs report, which encouraged interest rate futures traders to price in as much as 120 bps of reductions in 2024 earlier this month. That pricing has reduced to roughly 100 bps now.
• Investors also said an abrupt market sell-off was also a driver of aggressive rate cut calls, related to the unwinding of large leveraged positions as a result of a sudden, sharp rise in the Japanese yen.
• Although some Fed officials have hinted rate cuts are coming, most economists in the Aug. 14-19 Reuters poll were not expecting a rapid series of rate cuts. Recent data, including last week's strong retail sales report, suggests the economy is performing relatively well even as inflation recedes.
• The unemployment rate is forecast to remain at around the current 4.3% through 2026, while Inflation is forecast to ease only slightly over the coming two years, according to the median forecasts in the poll. All measures of inflation polled - the Consumer Price Index, core CPI, personal consumption expenditures price index and core PCE - are expected to stay above 2% until at least 2026. Despite recent easing, wage growth has remained above the 3.0%-3.5% range seen as consistent with the Fed's 2% inflation target.
• The Fed was expected to deliver a 25 basis point cut each in the four quarters of 2025. Markets are currently pricing around 200 basis points of reductions by end-Q3 2025.

(Source: Reuters)

• Growth in negotiated wages across Germany slowed in the second quarter (Q2 2024), providing some relief to European Central Bank policymakers and possibly bolstering the case for another interest rate cut in September.
• Negotiated wages rose by 3.1% in Q2 2024 after an alarmingly high 6.2% in the previous quarter, suggesting that inflationary pressure from labour incomes may continue to ease, data from the Bundesbank, Germany's central bank, showed on Tuesday.
• The ECB has long focused on negotiated wages and argues that even if current growth rates are still high, collective agreements already struck point to lower figures in the quarters ahead. Lower wage growth would help bring inflation back down to 2% by next year.
• Still, Tuesday's figures may concern some policymakers as wage growth excluding one-offs, such as bonuses and inflation compensation payments, accelerated to 4.2% in Q2 2024 from 3.0% in Q1 2024. However, monthly figures painted a more nuanced picture with the rate in June down to 4.1% from 4.7% in May.
• Markets currently see a more than 90% chance of a 25-basis-point rate cut in September and expectations were bolstered overnight when Finnish central bank chief Olli Rehn said that weak economic growth may warrant easing next month. The Bundesbank nevertheless warned that wage growth is still quick and focus should shift to wages without the one-offs, since unions continue to demand big pay increases.

(Source: Reuters)

• Consumer prices rose 0.8% in July 2024, with the All Jamaica Consumer Price Index (CPI) rising from 136.4 in June to 137.5 in July.
• This upward adjustment was primarily driven by a 1.9% increase in the heavily weighted index for the division ‘Food and Non-Alcoholic Beverages’. There was a 7.4% rise in the index for ‘Vegetables, tubers, plantains, cooking bananas and pulses’ largely stemming from higher prices for some agricultural produce, chiefly vegetables, in the aftermath of Hurricane Beryl.
• Also contributing to the upward movement in the CPI for July was a 0.4% rise in the index for ‘Transport’ division due to higher petrol prices and increased toll rates for the East-West leg of Highway 2000.
• Despite higher consumer prices during the month, the point-to-point inflation rate for the All Jamaica Consumer Price Index from July 2023 to July 2024 was 5.1%. This was 0.3 percentage points lower than the 5.4% recorded for June 2023 to June 2024. The divisions making the largest contribution to the point-to-point inflation rate were "Transport" (11.5%), "Food and Non-Alcoholic Beverages" (3.5%), and "Housing, Water, Electricity, Gas and Other Fuels" (5.0%).
• The reduction in point to point inflation was largely stemming from the slowdown in the rate of increase in the "Food and Non-Alcoholic Beverages", and "Housing, Water, Electricity, Gas and Other Fuels", declining from 4.0% to 3.5% and 5.9% to 5.0%, respectively.
• At its last monetary policy meeting in June, the BOJ kept its policy rate at 7.00 and agreed to start a gradual easing of its monetary policy stance. Inflation is projected to remain generally within the 4-6% target range over the next two years, with minor deviations in 2025 due to potential fluctuations in agricultural prices. As such, BOJ will continue to monitor these price movements to guide its decisions on policy rate adjustments and other monetary policy actions in the future. The next policy decision will be on the 20th of August.

(Sources: STATIN & NCBCM Research)

• Buoyed by solid revenue growth, Honey Bun reported net profit of $ 240.99Mn for its 9 months ending June 30, 2024, a 19.3% increase year on year.
• Revenue grew 12.9% (or $331.03Mn) YTD to $2.89Bn due to stronger sales. There was also a 7.6% rise in direct costs; however, with revenue growth outpacing direct costs gross margin expanded by 2.7 percentage points to 46.4%.
• Operating Expenses grew by 20.5% (or $175.65Mn) to $1.03Bn. Despite cost pressures, Honey Bun’s operating profit increased by 15.7%, as the rise in revenues outweighed the administrative (+19.7% or $94.87Mn) and selling and distribution (21.5% or $80.79Mn) expenses, supporting growth in its bottom-line.
• Honey Bun has embarked into a new market segment, with the purchase of the retail pastry shop “Swirls” on June 1, 2024. With this acquisition, the Company plans to enhance its product portfolio, offering a wider variety of baked goods and meals to meet the growing consumer demand.
• The company is continuing its growth and expansion strategy with the development of its new production facility in Angels, St. Catherine, which is expected to more than double its manufacturing capacity. The new facility will be between two major highways, giving Honey Bun greater access to markets outside the Kinston and St. Andrew metropolitan area. Overall, as the company continues to expand, it is expected to generate additional revenue, which should aid in sustaining long-term growth and may lead to enhanced earnings performance.
• Reflecting its strong financial performance and investors’ expectations for continued growth in earnings given the recent acquisition and its other expansion plans, Honey Bun’s stock price has increased by 27.5% since the start of the calendar year. The stock closed Thursday’s trading session at $8.16 and currently trades at a P/E of 15.7x earnings, which is below the Junior Market Manufacturing Sector Average of 22.3x.

(Sources: JSE and NCBCM Research)

• Fitch Solutions has substantially revised upward its growth forecasts for the Dominican Republic for 2024 from 3.8% to 4.6% and for 2025 from 3.5% to 5.1%. The forecasts are in line with Focus Economics consensus for 2024 (4.6%) and marginally more upbeat in 2025 (4.6%).
• While Fitch’s expectations for aggregate household income growth have modestly improved, the revisions are underpinned by a more upbeat view of investment growth in the coming quarters as well as an improving growth outlook for the US economy.
• Fitch forecast that the Dominican fiscal deficit will stabilise at 3.4% of GDP in 2024 (2.7% previously) and 2025, which, in conjunction with strong economic growth, will contain the overall debt load at 45.2% of GDP by 2025.
• In 2024, economic resilience will drive tax revenue growth, balancing against increased capital and payroll spending, but in 2025, proposed tax cuts pose risks to revenue growth and could cause President Luis Abinader to temper expected spending increases.
• After winning supermajorities in both chambers of Congress, President Luis Abinader of the Modern Revolution Party will embark on a sweeping reform drive, including reforms to the constitution, social security, labour and fiscal policy. Given his large majorities in Congress, Fitch believes that Abinader will be able to institute his agenda more or less fully, although the possibility exists that some minor concessions will be made to retain the support of allied parties.
• While the full text of the reform proposals will not be presented to Congress until mid-August, based on public statements, Fitch remains fairly optimistic that the changes will be conducive to economic growth and improved fiscal policy guardrails.

(Source: Fitch Solutions)

• The Caribbean Biodiversity Fund (CBF) has recently launched its inaugural Call for Proposals for the Advancing Circular Economy (ACE) Facility, where residents from various Caribbean countries are eligible to apply.
• This program aims to provide grants totalling US$24.7Mn to innovative projects that promote circular economy principles and address the pressing issue of marine litter to combat marine pollution and safeguard biodiversity in the Caribbean region.
• Recognising the significant impact of marine pollution on Caribbean ecosystems and the bio-economy, the CBF has committed to advancing sustainable solutions in the region through the ACE Facility, which is part of its Nature-Based Economies Program.
• The ACE Facility aims to support projects that implement practical circular economy principles to prevent waste from entering the marine environment and to remove marine litter, while also considering post-waste removal processes such as recycling, reuse, and refurbishing for proper waste disposal.
• Funding for the ACE Facility is provided by the KfW Development Bank (KfW) on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). Grants ranging from US$400,000 to US$2Mn per project are available and can be implemented over two and a half to three years.
• The eligible countries for funding include Cuba, Dominican Republic, Dominica, Grenada, Haiti, Jamaica, Montserrat, Saint Lucia, and Saint Vincent and the Grenadines. Eligible organizations from the Caribbean region include non-governmental organizations (NGOs), community-based organizations (CBOs), government agencies, regional organizations, small and medium-sized enterprises (SME), universities, and consortia of these entities.

(Source: Dominica News Online)

• US mortgage rates climbed for the first time in three weeks. The average for a 30-year, fixed loan was 6.49%, Freddie Mac said in a statement Thursday. Last week’s average was 6.47%, the lowest in more than a year.
• The US housing market has been starting to benefit from an expectation that the Federal Reserve will cut its benchmark interest rate at its meeting in September. A recent measure of inflation showed that price pressures are abating, bolstering the case for lower rates.
• The 30-year rate “will likely trend down in the coming months as inflation continues to slow,” said Sam Khater, Freddie Mac’s chief economist. “Lower rates are good news for potential buyers and sellers alike.”
• Some of the gridlock in the housing market is already easing up. Homeowners have often been reluctant to sell and part with lower mortgage rates, limiting the amount of inventory for sale. But more properties are coming onto the market. In the four weeks through Aug. 11, new listings climbed 4.5% from the same period a year earlier, according to Redfin Corp.
• “In the medium-run, we expect the economy to land softly and housing inventory to continue to recover,” said Ralph McLaughlin, a Realtor.com senior economist. “This should put downward pressure on mortgage rates this fall and winter and will set the stage for a much better season for homebuyers in 2025.”

(Source: Bloomberg)

• U.S. retail sales rose more than expected in July, which could help to allay financial market fears of a sharp economic slowdown that were fanned by a jump in the unemployment rate.
• Meanwhile, another report showing a smaller-than-expected increase in the number of Americans filing for unemployment benefits last week showed resilience rather than deterioration in labor market conditions and lifted stock futures, Treasury yields, and the dollar.
• Futures traders raised the odds to about 75% that the Federal Reserve will ease by just 25 basis points in September after the Commerce Department said retail sales increased 1.0% last month after a downwardly revised 0.2% drop in June. Economists polled by Reuters had forecast retail sales advancing 0.3% after previously being reported as unchanged.

(Source: Reuters)