• Brazil's economy surprised to the upside in the second quarter, increasing bets on an imminent interest rate hike to curb inflationary pressures as the central bank gears up for its upcoming policy decision this month.
• Gross domestic product expanded 1.4% in the June 2024 quarter, accelerating from the revised 1.0% growth recorded in the March 2024 quarter, statistics agency IBGE (Brazilian Institute of Geography and Statistics) said on Tuesday, September 3, 2024.
• The quarter-on-quarter performance was above the 0.9% increase expected in a Reuters poll of economists. Year-on-year growth reached 3.3%, surpassing the 2.7% increase projected in the poll.
• "Overall data suggest a resilient economy, and the exchange rate hasn't recovered. In other words, two key conditions for a rate hike are met," said Jose Francisco Goncalves, chief economist at Banco Fator. He expects a 25 basis-point increase at the central bank's next policy meeting on Sept. 17-18. The central bank has kept its benchmark interest rate steady at 10.50% since June.
• "Today’s very strong domestic demand data increase significantly the odds of a rate hike at the September meeting," said Goldman Sachs economist Alberto Ramos.  Previously, there was a stronger consensus for a 25 basis-point hike, especially after central bank chief Roberto Campos Neto said the bank remained data-dependent and that any rate adjustment, if needed, would be gradual.

(Source: Reuters)

• The Bahamian Finance Ministry reported a fiscal surplus of B$26Mn in May 2024, on the back of increases in tax and non-tax revenues as well as contained recurrent and capital expenditures. This result is particularly meaningful as May is seasonally characterised by fiscal deficits (B$76Mn last year, B$81Mn in 2022).
• Notwithstanding, the government recorded a deficit over the first 11 months of FY2023-24 of B$151Mn. The imbalance was reduced from the B$230Mn observed during the first six months. The government’s initial target for the entire year was B$131Mn and later adjusted to B$210Mn, which still looks challenging to achieve.
• To reach the fiscal target for fiscal year 2024, the authorities must deliver a deficit of no more than B$60Mn in June. However, June is typically a month with large monthly deficits (B$319Mn last year; and B$212Mn in 2022) as many public entities unveil accounts payable before the fiscal year closes. As such reaching the B$60Mn target may be challenging.
• Of note, value-added tax (VAT) collections reported by the government undershot budget projections during the first 11 months of last year, which makes reaching the annual target difficult. Prime Minister (PM) Philip Davis blamed the underperformance on high-end real estate sales. As of May, total tax collection was 87% of the total budgeted for the year. The final number, however, is still uncertain as the government could defer payments to suppliers as well as reduce capital expenditures.
• Ruling Progressive Liberal Party (PLP) chairman and foreign affairs minister Fred Mitchell acknowledged that the government adopted a “pay as you go” stance rather than borrowing. However, he added that spending was reduced meaningfully during the year, which could also help the government reach its target.

(Source: Oppenheimer)

• U.S. housing inflation is likely to ease next year as the gap between supply and demand for homes narrows, according to research published by the Federal Reserve Bank of San Francisco on Tuesday. That decline will likely add to downward pressure on inflation.
• Stubbornly high shelter inflation has added considerably to overall U.S. price pressures in recent years even as the Fed raised borrowing costs aggressively to bring down inflation.
• While higher borrowing costs reduce demand for housing, it also reduces supply by making it more costly for builders. In recent months housing inflation has come down, but it remains well above pre-pandemic levels and continues to account for a large share of overall inflation. In July, shelter inflation rose 5% from a year earlier, while overall consumer price inflation registered 2.9%.
• Research shows that rent increases eventually do slow in the face of rising borrowing costs, but it takes some time. San Francisco Fed researchers used data from before the pandemic to estimate future shelter inflation trends and found that by year's end shelter inflation may drop to as low as 2%, before reverting next year to its 3.3% pre-pandemic average.
• "This will contribute downward pressure to inflation overall, although the extent and speed of this adjustment in shelter inflation is highly uncertain". Since housing inflation constitutes a significant part of the country’s headline inflation, a short-term easing in this sector could prompt the Federal Reserve to implement more accommodative rate cuts in the future. The U.S. Fed is widely expected to start lowering its policy rate later this month after aggressive interest-rate hikes in 2022 and 2023 to its current range of 5.25%-5.50%.

(Source: Reuters)

• A record number of blue-chip firms are swarming the US corporate bond market on Tuesday, taking advantage of cheaper borrowing costs as they look to issue debt ahead of the US presidential election. 
• Ford Motor Credit Co., Target Corp. and Barclays Plc are among 29 companies tapping the bond market, the busiest single sales day on record, according to data compiled by Bloomberg. Debt underwriting professionals at banks expect corporations to borrow about $125Bn through US high-grade bond sales in September.
• The issuance deluge comes as corporate finance chiefs aim to lock in borrowing costs while yields are relatively low. Average all-in yields have fallen below 5%, and risk premiums averaged about 93 basis points on Friday, the lowest since July 31. The day after US Labour Day is usually busy for the corporate bond market. Last year, it was the most active sales day of 2023, with $36.2Bn of debt priced by 20 firms.
• Interest-rate markets expect the Federal Reserve to start cutting short-term rates this year, but those cuts are already largely reflected in longer-term bond prices. Still, companies that need to borrow this year or even next year have been looking to sell bonds before October, when bond yields might start moving in unexpected directions ahead of the November US presidential elections.
• High-grade corporate bond sales on Tuesday are expected to be a record, measured by the number of issuers. But the outlook for September of about $125Bn of issuance aligns with the total for the same month last year. The five-year average for September is $136Bn, according to Bloomberg data.
• Firms swarm the US corporate bond market at a time when bond sales have been high, partly because of investors’ eagerness to snatch up securities to lock in higher yields before the Fed cuts rates.  “Just as night follows day, massive demand globally for corporate bonds will beget supply,” said Bill Zox, a portfolio manager at Brandywine Global Investment Management. 

(Source: Bloomberg)

• Chief Executive Officer (CEO) of the Jamaica Customs Agency (JCA), Velma Ricketts Walker, says the JCA has instituted several mechanisms and implemented several strategic initiatives that have further heralded the entity’s modernisation and transformation agenda.
• This, she said, is underpinned by the World Customs Organization (WCO) Revised Arusha Declaration, the leading guiding principles for integrity development within customs administrations.
• At the JCA’s annual anti-corruption panel discussion on August 30^th, The CEO noted that the strategic initiatives include an improved regulatory framework under the new Customs Act, now before Parliament, and the JCA’s reformed human resource management machinery evidenced by a more transparent recruitment process.
• Other transformational efforts include the digitalisation or automation of several trade and customs-related procedures and processes, driven by the customs management system, ASYCUDA. There is also the ongoing implementation of the Jamaica Single Window for Trade (JSWIFT). JSWIFT is an online platform that positively impacts trade and other border regulatory agencies.
• The CEO said the JCA is serious about preventing and combatting corruption, by implementing practical solutions. “Integrity is a crucial part of our operations at Customs and is one of our core values. The agency has strategically sought to institutionalise how we operate, through the establishment of an Internal Affairs Division, and further buildout of this division with the introduction of an anti-corruption and integrity section,” she informed.
• Mrs. Ricketts Walker said the most recent Customs Integrity Protection Survey (CIPS), in 2023, was a pivotal step in the JCA’s journey to enhance its operation. The primary goal was to measure stakeholders’ perceptions and identify areas needing attention. Additionally, she said that the introduction of the new Customs Act and the ratification of the Revised Kyoto Convention, which blueprints modern and efficient customs procedures, are also significant steps towards simplifying regulations and enhancing operational transparency.

 (Source: JIS)

• LIAT20 launched three new routes, expanding its network to Dominica, St Kitts, and Grenada. This development comes just weeks after the regional carrier’s initial launch earlier this month.
• LIAT20 is a collaboration between regional governments, mainly Antigua and Barbuda, and Nigerian carrier, Air Peace. The new carrier arose from the remnants of LIAT 1974, which served the Caribbean for almost five decades before the COVID pandemic exacerbated its long-standing financial troubles.
• The inaugural flight to Dominica, the ‘nature isle’ touched down on August 29, symbolising a new chapter in Caribbean air travel. Among the passengers was an enthusiastic and satisfied traveller who stated, “I always love flying with LIAT.”
• This expansion builds upon LIAT20’s successful launch on August 6, which initially connected Antigua, St Lucia and Barbados. With the addition of these three new destinations, LIAT20 now serves six Caribbean islands.
• In a move to make air travel more accessible, LIAT20 is offering competitive fares across its network. Passengers can now travel between the aforementioned destinations at least three days a week for a base fare of US$99, exclusive of taxes.
• Speaking at a ceremony in Dominica to mark the occasion, LIAT20’s Director of Operations, Arthur Senhouse, emphasised the airline’s broader vision. He highlighted LIAT20’s plans to “connect the region economically and socially”. Senhouse also extended an invitation to other Caribbean nations, encouraging them to “embrace the vision and play a part” in this regional initiative.

(Source: Antigua Observer)

• Fitch Solutions forecasts that Peru’s economy will grow by 2.8% in 2024 and 2.5% in 2025 after experiencing a contraction in 2023.
• Monthly growth has remained strong through the first half of the year, with an average of 2.5% for the first six months, compared to the 0.6% contraction last year.
• Fitch expects exports, especially of mined products, to remain strong, and private consumption to recover on the back of lower interest rates. These dynamics are also set to continue into 2025.
• Since 2024, inflation has remained moderate. Given this, Fitch now expects the Banco Central de Reserva del Peru (BCRP- Central Bank of Peru) to move some cuts to 2025 as opposed to making them this year. These lower interest rates will support further credit growth and consumption in 2025.
• Risks to Fitch’s medium-term growth forecast are skewed to the upside as recovering investment flows may add a stronger tailwind to mining and other sectors, beyond Fitch’s current expectations.

(Source: Fitch Solutions)

• China's manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed on Saturday. Lower factory gate prices, which refer to lower quoted prices from manufacturers, excluding billed transport and delivery charges are pressuring policymakers to press on with plans to direct more stimulus to households.
• The National Bureau of Statistics purchasing managers' index slipped to 49.1 from 49.4 in July, its sixth straight decline and fourth month below the 50-mark separating growth from contraction. It missed the median forecast of 49.5 in a Reuters poll.
• After a dismal second quarter, China, the world's second-largest economy lost momentum further in July, prompting policymakers to signal their readiness to deviate from their playbook of pouring funds into infrastructure projects, instead targeting fresh stimulus at households.
• Sentiment remains gloomy among manufacturers as a years-long property crisis keeps domestic demand in the doldrums and Western curbs loom on Chinese exports like electric vehicles. Producers reported factory gate prices were their worst in 14 months, plunging to 42 from 46.3 in July, while the new orders and new export orders sub-indices remained firmly in negative territory and manufacturers maintained a hiring halt.
• "The fiscal policy stance remains quite restrictive, which may have contributed to the weak economic momentum," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "To achieve economic stabilisation, the fiscal policy stance needs to become much more supportive. With the U.S. economy slowing, exports may not be as reliable a source for growth as it was in the first half of the year," he added.
• Policy advisers are pondering whether Beijing may decide in October to bring forward part of next year's bond issuance quota if growth does not show signs of bottoming out in the summer. China made a similar move at the same time last year with stimulus that raised the deficit to 3.8% of GDP from 3.0% and frontloaded part of the 2024 local government debt quotas to invest in flood prevention and other infrastructure.

(Source: Reuters)

• European Central Bank policymakers are increasingly at odds on the growth outlook, a rift that could shape the rate cut debate for months, with some fearing a recession and others focusing on lingering inflation pressures, sources close to the debate said.
• The ECB cut interest rates in June and is almost certain to ease again in September in a nod to slowing price growth. However, policy decisions further down the road are likely to be more complicated as the eurozone economy enters a more precarious state, conversations with close to a dozen sources suggest.
• The core of the debate is over how weakness in economic growth and a potential recession will impact inflation - the bank's ultimate focus - as it tries to cut inflation to 2% by the end of 2025. Although much of the discussion is private, conversations with sources with direct knowledge of it reveal diverging views. An ECB spokesperson declined to comment.
• Policy doves, who remain in the minority, argue the economy is weaker than thought, recession risks are on the rise and firms that have hoarded labour are starting to cut vacancies, leaving the jobs market softer.
• Once employment declines, so does disposable income, quickly eroding consumption and leaving a self-reinforcing downturn. "This would weaken price pressures quicker than we now forecast, so I think the risk of returning to below-target inflation is real," one of the sources, who asked not to be named, said.
• This would suggest the central bank is behind the curve in cutting interest rates and buffering the economy, supporting the case for quicker interest rate cuts, they say. Inflation, down to 2.2% in August, is now forecast to rise again towards the end of the year and come back to 2.0% only in late 2025.

(Source: Reuters)

• Minister of Agriculture, Fisheries and Mining, Hon. Floyd Green, has expressed concern about the price gouging of agriculture products, particularly in the aftermath of Hurricane Beryl. Speaking during a media briefing at the Ministry’s offices in St. Andrew on Tuesday, Mr. Green said traders were allowed access to external markets to ensure the nation has adequate food supply.
• “Once we have adequate supply, from our perspective, we know what should be the regular price for a number of our agriculture products. I am concerned that our traders are not passing on savings for our consumers, and I am getting a lot of outrage around prices of things that have come from external markets that seem to be still bearing the same high prices, even though the cost of source for those items are low,” the Minister said.
• Mr. Green advised that he has raised the matter with the Minister of Industry, Investment and Commerce, Senator the Hon. Aubyn Hill, who has asked the Consumer Affairs Commission (CAC) to conduct an investigation.
• In the aftermath of the category-four Hurricane Beryl, the Agriculture Ministry, in fulfilment of its role of ensuring that Jamaicans have access to food, had allowed persons to “bridge the gap” where there is a shortfall in supply by accessing external markets for various fruits and vegetables. These included lettuce, tomatoes, sweet peppers, carrots, cantaloupes, honeydews, broccoli, cauliflower, zucchini, squash and melons.
• Minister Green said despite instances of price gouging, there has still been some improvement in prices over the last two weeks, pointing out that it could take up to six weeks for local production to be resuscitated.
• In the meantime, he has given farmers the assurance that sourcing some products externally is a “balancing act”, taking into account the levels of production and consumption at the time.

(Source: JIS)