• On Wednesday, May 15, 2024, the Colombian government statistics agency, the National Administrative Department of Statistics (DANE), released historical data revisions and preliminary Q1’24 data. The preliminary results showed that real GDP growth in Q1 2024 came in at 0.7% y-o-y growth, compared to Fitch’s expectations of 0.5% and consensus of 0.1% y-o-y.
• Positive contributions came from aggregate consumption (0.4%) and exports (0.7%), which contributed 0.1 and 0.3 percentage points (pp), respectively, to headline growth. In comparison, the steep contraction in imports (12.9%) represented a positive 3.2pp contribution to headline GDP.
• On the flip side, there was a continued contraction in gross capital formation (13.4%), representing a 2.9pp deduction from the headline Q1 2024 GDP. In seasonally adjusted terms, Q1 2024 saw a real GDP growth of 1.1% q-o-q.
• With the Q1 2024 print broadly in line with expectations, Fitch maintains its forecast of 1.3% annual growth in real GDP terms, as tight policy and high inflation will still hinder growth below the economy’s potential.
• Indeed, there are signs that the economy is facing some headwinds going forward as the seasonally adjusted monthly economic activity indexes show contractions in February (-0.4 m-o-m) and March (-0.8%). That said, Fitch believes there are risks to the upside, as looser policy from the Banco Central de la Republica (BanRep) could spur stronger economic growth than Fitch is currently predicting.

(Source: Fitch Solutions)

• The number of Americans filing new claims for jobless benefits fell last week, unwinding nearly half of the jump at the start of the month, indicating that labor market conditions remain fairly tight even as job growth is cooling.
• There are signs the economy slowed further early in the second quarter as the delayed effects of the Federal Reserve's hefty interest rate hikes start to have a bigger impact. Single-family homebuilding dropped again in April and permits for future construction hit an eight-month low. Output at factories unexpectedly fell, other reports showed on Thursday. April's economic data, including nonfarm payrolls and retail sales, have so far come below economists' expectations.
• "The economy is losing momentum in the face of restrictive monetary policy," said Sal Guatieri, a senior economist at BMO Capital Markets. "But the jury remains out on how quickly inflation will subside to provide some rate relief."
• Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 222,000 for the week ended May 11, the Labor Department said. Economists polled by Reuters had forecast 220,000 claims in the latest week. Claims raced to an eight-month high in the prior week.
• Unadjusted claims decreased by 13,325 to 196,725. Claims in New York tumbled 9,442, almost reversing a prior surge which the state attributed to layoffs in transportation and warehousing, accommodation and food services as well as educational services industries. There were significant drops in filings in Illinois and Indiana, more than offsetting a notable rise in Florida.
• The labour market is steadily rebalancing in the wake of 525 basis points worth of rate hikes from the U.S. central bank since March 2022 to cool demand in the overall economy. That, together with the resumption of inflation's downward trend, has raised the odds of a rate cut in September. Earlier this month, the Fed left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, which it had been since July.

(Source: Reuters)

• Top global brokerages have retained their expectations for when the U.S. Federal Reserve will lower interest rates this year after softer-than-expected inflation data boosted hopes of a soft landing for the economy.
• J.P. Morgan and Goldman Sachs expect the Fed to start cutting rates as soon as July, while Morgan Stanley, UBS Wealth Management, Bank of America, and Deutsche Bank see rate cuts coming in September or December.
• This year's expectations of interest rate cuts have boosted demand for equities after a downbeat 2023 when steep borrowing costs dented the valuation of companies and forced consumers to rein in spending. The April inflation readings renewed confidence in rate cuts, with most brokerages keeping their forecasts unchanged as they await more data.
• This is in contrast to March when hot inflation numbers had nudged them to push their outlooks for the year's first rate cut as far as December, while some even suggested no cuts. The U.S. consumer prices index (CPI) increased less than expected in April, data showed on Wednesday, potentially encouraging policymakers who were waiting to see renewed progress on inflation before reducing borrowing costs.
• "April Consumer Price index took a step in the right direction after an alarming Q1... However, one report is unlikely to inspire a significant amount of confidence for the Fed," BofA Global Research economists said in a note.
• "While it is still hard to get any good service (level inflation improvement) around here these days, some stabilization is encouraging and can reinforce the Fed's desire to still make rate cuts this year and keep two cuts still on the table for 2024," said Rick Rieder, BlackRock's chief investment officer of Global Fixed Income.

(Source: Reuters)

• TransJamaica Highway Limited recorded a net profit of US$6.91Mn for the first quarter ending March 31, 2024. This represents a 38.8% increase in profitability year-over-year (yoy)  driven by higher revenues and other gains earned.
• Revenue for the quarter was up by 9.9% yoy to US$19.78Mn and other gains moved from a loss of US$140K to a gain of US$1.23Mn, representing a 975.7% increase. However, earnings were partially offset by higher expenses incurred during the quarter.
• The company incurred operating expenses of US$6.02Mn, reflecting a 9.8% (or US$537K) increase, compared to US$5.49Mn reported for the same period in 2023. This increase was primarily due to higher amortisation of the ‘Intangible Asset’, higher insurance renewal cost and increased security cost based on the 2023 court ruling and minimum wage increase. This was slightly tempered by lower consultancy fees and lower greenery and other maintenance costs for the period.
• Additionally, administrative expenses increased by 13.4% (or US$276K) primarily due to the salary changes following the December 2023 completed restructuring exercise and the annual salary increases for the year 2023, which were delayed pending the results of this exercise.
• TJH’s stock price has increased by 22.2% since the start of the calendar year. The stock closed Wednesday’s trading session at $3.30 and a had P/E of 9.7x, which is below the Main Market Energy, Industrial, and Materials Sector Average of 9.8x.

(Sources: Company Financials & NCBCM Research)

• The average price paid for goods and services by Jamaican consumers decreased in April 2024, as reflected in a 0.7% decline in the All-Jamaica Consumer Price Index (CPI). The decrease was influenced by a downward movement in the index for the ‘Housing, Water, Electricity, Gas and Other Fuels’ division (2.3%) as a result of lower electricity, water and sewage rates.
• Also contributing to the fall in the inflation rate was a 0.6% fall in the heaviest weighted index, the ‘Food and Non-Alcoholic Beverages’ division. The index for the ‘Food’ group declined by 0.7%, while the index for the ‘Non-Alcoholic Beverages’ group rose by 0.4%. The fall in the index for the ’Food’ group was mainly influenced by a 3.7% decline in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’ due to lower prices for agricultural produce such as carrot, tomato, Irish potato, sweet potato, and yellow yam.
• The decline in the index for the group ‘Food’ was, however, moderated by a 0.5% increase in the index of the class ‘Cereal and cereal products’, largely influenced by higher prices for rice. Additionally, the index for the ‘Transport’ division fell by 0.6%, reflecting the decline in the index for the class ‘Passenger Transport Services’.
• The point-to-point inflation rate (April 2023 – April 2024) was 5.3%. This was 0.3 percentage points lower than the inflation rate for the period March 2023 to March 2024. The main contributors were the divisions; ‘Food and Non-Alcoholic Beverages’ (5.3%), ‘Transport’ (9.5%) and ‘Housing, Water, Electricity, Gas and Other Fuels’ (5.0%). For the calendar year-to-date, the inflation rate was -1.8%.
• At its last monetary policy meeting in March, the BOJ kept the policy rate at 7.00% as it continued to monitor the pass-through effects of previous adjustments on deposit and loan rates. The next policy decision will be on the 20th of May, when it is expected that BOJ will maintain its policy rate at 7.00%.
• While inflation has fallen over the last three months, farmers are still grappling with drought conditions. If these conditions persist, it may put upward pressure on food prices, the largest factor in the CPI basket.

(Sources: STATIN & NCBCM Research)

• Brazil's economy exhibited a higher-than-expected contraction in March but still managed to clinch a positive performance in the first quarter, central bank data showed on Wednesday.
• The country's IBC-Br economic activity index, considered a leading indicator of gross domestic product (GDP), posted a seasonally adjusted growth of 1.08% in the first quarter.
• The quarterly performance followed a 0.34% decrease in March from the previous month, compared with a 0.25% drop expected by economists polled by Reuters. On a non-seasonally adjusted basis, the IBC-Br index fell by 2.18% over March 2023 but increased by 1.68% in the 12-month period.
• Brazil, Latin America's largest economy has been propelled by increased household consumption amid rising disposable income under policies of larger welfare cash handouts and real minimum wage gains implemented by leftist President Luiz Inacio Lula da Silva. This backdrop is also supported by a robust labour market, which has been driving growth in the service sector.
• However, GDP is expected to slow down compared to last year's growth of 2.9%. While the government officially projects a 2.2% expansion for the economy this year, economists surveyed weekly by the central bank forecast a slightly lower rise of 2.09%.
• The lower expectation largely reflects uncertainties regarding how the historic flooding in Brazil's southernmost state of Rio Grande do Sul, which caused widespread destruction and displaced over half a million people, will impact economic activity.

(Source: Reuters)

• Fitch Solutions forecast that the Dominican Republic will experience accelerating real GDP growth from 2.4% (est. 2.5%) in 2023 to 3.8% (prev. forecast 3.4%) in 2024 as tailwinds from resilient US demand will support export and private consumption growth. Strength in export-facing sectors will support the labour market, boosting household incomes and consumption.
• Further, Fitch is revising its 2023 current account deficit forecast upwards from 4.2% of GDP to 1.3% for the Dominican Republic. In 2024, the deficit will widen slightly to 1.4%. A larger goods trade surplus, a stronger performance for the tourism sector and resilience in remittance inflows are behind Fitch’s more optimistic view for 2023.
• After revising the Dominican Republic’s 2023 budget deficit forecast from an estimated 3.4% of GDP to 2.4%, the company forecasts the deficit will marginally widen to 2.8% in 2024. Risks are skewed toward a wider deficit, considering the Dominican Republic may experience natural disasters and fluctuating energy prices that could raise government expenditure and lower consumption growth.
• Additionally, Fitch believes that the incumbent president of the Dominican Republic, Luis Abinader will win a second term comfortably, while his Partido Revolucionario Moderno (PRM; English Translation: Modern Revolutionary Party) and their allies are likely to increase their share of seats in congress. With a strong mandate, Fitch expects broad policy continuity with a relatively pro-business and pro-market economic policy.

(Source: Fitch Solutions)

• U. S. consumer prices increased less than expected in April, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut. The hope that the Federal Reserve would start its easing cycle this year was further bolstered by other data on Wednesday, which showed that retail sales were unexpectedly flat last month.
• The reports suggested that domestic demand was cooling, which will be welcomed by officials at the U.S. central bank as they try to engineer a "soft-landing" for the economy.
• The consumer price index rose 0.3% last month after advancing 0.4% in March and February, the Labor Department's Bureau of Labor Statistics said. The higher cost of living has detracted from the economy's resilience and is a campaign theme for the Nov. 5 presidential election.
• President Joe Biden said prices were still too high but argued that his agenda, which includes building two million homes and taking on Big Pharma to lower prescription drug prices, "will give families breathing room." Donald Trump's campaign blamed inflation on the Biden administration's policies and touted the former president's America First agenda of low taxes, lower prices, and higher wages.
• Inflation accelerated in the first quarter amid strong domestic demand after moderating for much of last year. Last month's slowdown was a relief after data on Tuesday showed a jump in producer prices in April. Inflation is being driven by providers of services like motor vehicle insurance, housing, and healthcare catching up to higher costs.
• Economists expect price pressures to ebb this quarter and inflation to gradually move toward the Fed's 2% target as the labor market is cooling. On Tuesday, Fed Chair Jerome Powell said, "I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year."
• Financial markets saw a roughly 73% probability of a rate cut in September, up from 69% before the data. A few economists anticipate the Fed will start lowering borrowing costs in July.

(Source: Reuters)

• Utility price hikes in over 10 Chinese cities may temporarily boost inflation but could ultimately lead to deflation by reducing household spending power. Boosting household demand is crucial to avoid prolonged low growth and deflation, but policies to shift economic resources to consumers are difficult for debt-laden local governments. Cities like Shenzhen and Guangzhou have raised water or gas prices, and high-speed railway tickets are also set to increase.
• These hikes have sparked social media criticism as people expect to have less to spend on basic needs. While price hikes might keep inflation positive in the short term, the effect will fade after a year, leaving negative impacts on demand. ANZ strategist Xing Zhaopeng notes that higher living costs will hit household sentiment, likely reducing domestic consumption.
• New water prices in cities like Guangzhou and Shanghai have risen 10%-50%, and gas prices in cities like Chengdu and Shenzhen have increased 5%-20%. These increases come from a low base as cities have long subsidized utilities. From 2016 to 2021, annual increases in gas, water, and heating bills were 2.4%, 0.8%, and 0.2%, respectively. China has avoided the sharp utility price spikes seen in Europe post-Ukraine invasion due to subsidies.
• However, cities are cutting spending as real estate downturns limit land lease revenue, a significant income source pre-pandemic. Land auction revenues in 2023 were about 20% below 2019 levels. Wang Dan, chief economist at Hang Seng Bank China, expects more price increases due to insufficient local government revenues to pay subsidies.
• Despite rising costs, Xu Tianchen of the Economist Intelligence Unit notes they start from a small base, potentially leading lower-income groups to reduce wasteful consumption. ANZ estimates utility costs account for 7.7% of China’s consumer price inflation basket, with a minimal overall impact on this year’s inflation, maintaining a 0.7% end-year forecast. China has faced deflation for over a year, with a 0.3% year-on-year consumer price rise in April, partly due to higher utility prices. Recent hikes are not intended to boost inflation but may lead to economic stagnation and exacerbate deflation.

(Source: Reuters)

• The Jamaica Central Securities Depository (JCSD) subsidiary of the Jamaica Stock Exchange, in association with the Tax Administration Jamaica (TAJ) and the Jamaica Securities Dealers Association (JSDA) recently launched a withholding tax certification solution for retail, non-prescribed investors. The solution gives easier access to withholding tax certificates on the TAJ RAIS platform allowing bondholders to reclaim withholding tax on interest paid.
• Previously, retail bondholders couldn’t re-coup tax on interest paid on bonds from the secondary market, while Prescribed institutional Investors could. Additionally, retail investors paid gross interest to acquire the bond. The solution will now enable retail investors to pay net of withholding tax.
• This development will reduce the purchase costs of bonds for retail investors, while also reducing the need for brokers to absorb the costs of withholding tax from investors who cannot reclaim withholding taxes paid on purchases made on the secondary market. This solution applies to bonds under the management of the JCSD and JCSDTS.

(Source: JSE)