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Daily Market Commentary February 26 2010 |
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Disclaimer Issued by Rada Forex LP to professional investors only. Product of a brokering/dealer desk and not the Research Dept. Opinions expressed are solely that Opinions. The commentaries are not an official confirmation of terms and unless stated, is not a personal recommendation, offer or solicitation to buy or sell. Any prices or quotations contained herein are indicative only and not for valuation purposes.
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BNP-Paribas Market Commentary |
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Key Events: Brazil: Mixed signs on the growth front. In January, capacity utilization fell on the margin and the primary surplus increased. However, the labor market report was stronger. Today, watch Feb's FGV business confidence. Mexico: Current account for Q4'09 surprised to the downside, a deficit of USD 690mn. Chile: Watch today the release of the MPC minutes from the 11 Feb meeting Colombia: Watch today the MPC meeting. We expect the CB to leave rates unchanged at 3.5%. BRAZIL Feb's IGP-M came out slightly above consensus (+1.12% m/m) at +1.18% m/m. The headline moved up from the previous Feb's IGP-10 (1.08%) mainly due to agricultural prices (up from 0.1% m/m to 0.6% m/m), reflecting the expected spike in fruit and vegetables. Industrial prices moved up from 1.5% m/m to 1.7% m/m, on the back of further increases in fuel and chemical products. Our core measure of the WPI-industrial moved down slightly to 0.6% m/m, but the diffusion index of WPI-industrial rose from 46% to 49%, a high level. On an annual basis, IGP-M rose from -0.7% in Jan to 0.2%. For March, we expect an important moderation in fuel prices on the back of the fall in ethanol and sugar prices. We expect IGP-M (Mar) to print +0.57% m/m. The consolidated primary fiscal result was a BRL 16.2bn surplus in January, in line with consensus (BRL 16.7bn). The accumulated result over the past 12 months moved up from 2.1% of GDP in Dec to 2.3%. The interest burden, BRL 14.0bn in Jan, was not high enough to prevent the accumulated figure over the past 12 months easing from 5.4% of GDP in Dec to 5.3%. As a result, we had a nominal surplus in the public accounts, BRL 2.2bn, pushing the 12-months accumulated result down from 3.3% of GDP in Dec to 3.0%. The net public debt-to-GDP ratio moved down from 42.9% in Dec to 41.7%. Of the 1.2 percentage point decline, 0.8pp came from the 8.6%.depreciation of the BRL against the USD in January. For 2010, we foresee the effective primary surplus reaching 2.65% of GDP, considering 0.65% can be deducted if expended under the PAC/PPI programmes. The net debt-to-GDP ratio should reach 41.3% of GDP. Overall, the increasing primary surplus is the materialisation of one of the headwinds we see limiting growth recovery in the country in 2010. In January, Fiesp's manufacturing sector report (São Paulo state) showed capacity utilization falling to 81.7% s.a. from the sharply revised Dec figure, from 83.2% s.a. to 82.4% s.a.In that sense, capacity utilization is not close to the peaks (83.6% s.a. in July 2008) as Dec's report suggested. In fact, the current level is modestly above the 5-year average of 81.3% s.a. The unemployment rate (UR) rose from 6.8% in Dec to 7.2%, below consensus of 7.6%. On a seasonally adjusted basis, the UR actually fell more significantly from 8.1% s.a. in Dec to 7.6% s.a., below November's level. While we saw net job creation of 71k s.a. (non-seasonally adjusted, -211k), the labour force declined on the margin, -53k s.a. (non-seasonally adjusted, -115k). The first step in the normalization of labour force we witnessed in Dec did not reverberate in January, and that was the key reason behind the lower UR print. However, we remain convinced such normalization will take place in the coming months, pushing the UR higher. On an annual basis, employment growth rose from 1.4% in Dec to 2.1% while labor force growth dropped from 1.4% in Dec to 1.1%. Following contractions in Nov and Dec, nominal wages rebounded in January, by 2.0% m/m s.a., albeit not enough to prevent the annual change moving down from 4.8% to 4.2%. Real wages ran at -0.4% y/y in January, down from 0.7% y/y in Dec. Combined with the net job creation, total wages in nominal terms rose 2.6% m/m s.a., pushing the annual change up from 6.3% in Dec to 6.4%. Today, watch Feb's FVG business confidence, which we regard as the best leading indicator for the manufacturing sector. On the back of a new round of derailing risk appetite across the board, the BRL moved in tandem and depreciated by 0.4% to 1.831. Our call of being long USDBRL is very much based on the uncertainty from abroad with regard to economic growth. The new round of weak US activity data supports our view. On rates, economic data were mixed. While the unemployment rate came out below consensus, Fiesp's capacity utilization was reduced on the margin from the significant downward revision to Dec's data. Additionally, the primary fiscal result is moving north, limiting the economic stimulus on the fiscal front. Today, all eyes will be on Feb's FGV business confidence, which we consider as the best leading indicator for the manufacturing sector. MEXICO Current account for Q4'09 surprised to the downside, a deficit of USD 690mn. The main source of surprise came from non-factor services, a deficit of USD 2.51bn, nearly twice the amount we were expecting of USD 1.4bn. Both tourism and insurance spending increased significantly, as the pace of economic activity recovered in the last quarter of the year. The merchandise trade brought a small deficit of USD 380mn (already known) while factor services, matched our forecast, bringing a deficit of USD 2.66bn in Q4'09. Remittances were an important source of dollars, bringing an inflow of USD 4.83bn. For 2009, the current account posted a deficit of USD 5.24bn or 0.5% of GDP, down from a deficit of USD15.8bn in 2008, or 1.7% of GDP. On the capital account side, FDI was a small USD 735mn, down from USD 5.60bn in Q4'08. The figure brings total FDI for 2009 to USD 11.4bn, less than half of the USD23.1bn in 2008. Portfolio investment on the other hand closed 2009 with an inflow of USD 7.68bn, well above the inflow of USD 2.45bn in 2008. The total balance of payments result for 2009 was a surplus of USD 5.33bn, down from USD 7.43bn in 2008. January unemployment came higher than consensus at 5.9%. Consensus was expecting a reading of 5.3% on the back of seasonality in the month of January. The seasonally adjusted rate was slightly higher, moving from 5.5% in December to 5.6%. The MXN ended the session at 12.82, down 0.15% against the dollar. The peso traded in a wide range of 12.79 to 12.89 in a volatile session. Similar to the other Latam currencies the deterioration in mood dominated the session in the morning, but in the afternoon the peso recovered most of the losses. The nominal curve continued to follow a steepening movement with 10y TIIE swap widening 2bp while the short part of the curve rallied 2-3bp. After a busy calendar this week, there are no major releases today or next week. CHILE Watch today the release of the MPC minutes from the 11 Feb meeting. Back then the CB left rates unchanged. There were no major surprises in the CB's MPC decision or statement. The CB left rates unchanged at 0.5% and delivered a similar statement to that in January. In the February statement, the CB acknowledged greater volatility in the world economy but the authorities remain of the view that the global recovery remains on course. Domestically, the CB recognized that if anything, domestic demand in picking up steam more quickly than the authorities expected in their latest Monetary Policy Report. As far as inflation is concerned, the CB put the higher than expected January number down to one-off effects, emphasizing that core measures remain subdued. The CB also acknowledged the recent weakening in Chile's real exchange rate. In terms of policy, the CB kept January's language unchanged, saying that the benchmark rate will remain at 0.5% until at least the second quarter and that the CB will continue to use its policies with "flexibility" to attain its inflation target. Our reading: the decision and statement were much as we had anticipated and show a CB that, despite improving economic conditions, a weaker peso and some signs of higher inflation, appears in no rush to turn outright hawkish. We think this is a sensible stance for now and still expect the CB to start hiking interest at the end of Q2 Watch today the release of January industrial production data. We expect industrial production to post 2.6% y/y growth in January, equivalent to +0.5% m/m s.a. The demand for electricity increased in January at the same time that the import of intermediate goods gave support to higher industrial production. We look for a sharp recovery of the industrial sector in 2010 to growth of 4.0%, after the decline of 6.7% in 2009. The CLP finished the session 0.3% down against the dollar at 530.0. The peso traded in a very narrow range of 528 to 530.7, closing near lows. Just like its peers, the CLP lost ground against the dollar in a session of renewed risk aversion. Watch today the release of the February MPC minutes, where we expect no major surprises. Also, watch the release of January IP (we expect +2.6% y/y). COLOMBIA Industrial production for the month of December came in below expectations at 2.0% y/y. Our seasonal adjustment points to an advance of 0.7% m/m, a strong reading. In the meantime, retail sales were up by 2.7% y/y, in line. Here our seasonal adjustment points to a gain of 0.6% m/m, also a very positive reading, pushing the 3m MA up from 0.5% m/m s.a. to 1.4% m/m s.a. Watch today the MPC meeting. We expect the CB to leave rates unchanged at 3.5%. While the economy has shown more convincing signs of recovery and inflation picked up in January, the CB appears in no rush to start raising interest rates. The recovery in Colombia remains tentative and appears to be lagging that of other countries in the region. The pick-up in inflation, meanwhile, can largely be attributed to transitory factors. In the meantime, the strength of the peso will also weigh on the CB's decision to stay on hold. We remain of the view that Colombia will be a late hiker, raising rates no earlier than September this year. The COP ended the session at 1942, 0.4% weaker agains the dollar, mostly due to the deteriorated external scenario. After testing 1911 last week, local pension funds came to take profits over their short USD, pushing us back to 1940 levels. There was very little activity in off-shore NDFs and CCS during yesterday's session. Today, watch the MPC meeting, where we expect rates to remain on hold. ARGENTINA The ARS closed stronger at 3.859 after trading in a range of 3.8590-3.8640. NDF curve closed mostly wider. There was demand in the street for 2-3-6 months. Both Lebacs and Nobacs closed unchanged. PERU The PEN ended the session at 2.849, down 0.2% against the dollar. The Peruvian New Sol remains a very low beta currency within Latam. We continue to expect a smooth appreciation trend for the PEN, targeting 2.80 for the short term. |