- Colombia: Analysts expect a 100bps hike by BanRep in Dec; Inflation expectations rose again, while growth outlook weakened
- Peru: Low cement sales in October point to weak private construction, to be offset by public investment
The Tuesday overnight session was quiet as global markets mostly monitor COVID-19 developments in China with cities tightening restrictions and Beijing reporting its highest number of new cases since 2020.
The mood is modestly risk-on in thin trading despite the virus backdrop, as US equity futures tee up minor gains alongside stronger European bourses are mixed. On the commodities front, iron ore is weaker given the demand outlook out of China while copper is in the green with buying interest likely picking up after an 8%+ decline over the previous six sessions; BHP has also averted, for now at least, a strike at its Escondida copper mine in Chile. Oil is modestly higher as it reverses (and then some) a steep drop yesterday after headlines on a possible OPEC+ output increase were dismissed by Saudi officials.
The USD is broadly weaker amid falling yields following comments from Fed officials Daly and Mester yesterday reinforcing the view of a 50bps hike in December; though the latter said she doesn’t think “we’re anywhere near to stopping.” Commodity/risk-sensitive currencies, with the exception of the MXN which is trading flat, are outperforming among the majors. The CLP is leading the expanded majors with a 1% gain thanks to gains in copper prices as well as continuing its rejection of the 950 pesos zone yesterday.
Mexican retail sales released this morning missed the median forecast, rising 3.3% y/y but falling 0.2% m/m in September in real terms (consensus at 3.9% y/y and 0.1% m/m, respectively). Non-seasonally-adjusted data show that weakness was relatively broad across consumer goods, with only the (choppy) supermarkets and department stores category showing a faster pace y/y versus August. We see the data having little impact on Banxico’s decision-making in the near-term. Mexican markets reopen today after yesterday’s Revolution Day.
Yesterday, Mexico’s President AMLO said that they are looking at “various options” in “government or in Mexican representation abroad” for Banxico’s Dep Gov Esquivel, after he lost the IADB presidency election to Brazil’s Goldfajn. AMLO also said that the Pacific Alliance summit running from Wednesday to Friday this week will very likely be cancelled after Peru’s President Castillo was barred by Congress from travelling to Mexico City.
The day ahead is quiet in Latin America with headlines posing the main risk to the performance of local assets in a quiet week with US markets closed on Thursday. Political developments are again the main thing to watch in the region. Note that Peru’s statistics agency publishes Q3 GDP data today, though the country’s central bank released national accounts data last week that showed a 1.7% y/y expansion in the quarter (see here).
—Juan Manuel Herrera
COLOMBIA: ANALYSTS EXPECT A 100BPS HIKE BY BANREP IN DEC; INFLATION EXPECTATIONS ROSE AGAIN, WHILE GROWTH OUTLOOK WEAKENED
The October Citi survey, which BanRep uses as one of its measures of inflation expectations, monetary policy rate, GDP, and the COP exchange rate, was published on Monday, November 21.
- Economic activity in Colombia will slow in 2023. Economic growth for 2022 is expected at 7.89%, above the previous survey’s forecast (7.69%). By 2023, GDP growth expectations fell to 1.25% (previously 1.65%), representing a soft landing for the economy. Looking ahead to 2024, economic growth is expected to be 2.56%, down from the previous expectation of 2.71%.
- Near-term inflation expectations deviated further from BanRep’s target range. November’s monthly inflation is expected at 0.57% m/m and 12.30% y/y. Scotiabank Economics is above consensus with 0.67% m/m and 12.42% y/y. In November, food prices will continue to generate upward pressure on inflation. However, other components, such as utilities fees, are expected to moderate, which would contribute to seeing lower inflation compared to previous months.
- By the end of 2022, consensus expects inflation to close at 12.27% slightly above the previous expectation of 12.19%. The upside revision came despite the announcement of a VAT holiday, which usually results in a moderation of prices. In 2023, inflation is expected to close at 7.62%, which is 2.5 times the central bank’s inflation target, and also up from the previous survey’s expectation of 7.22%.
- For the December monetary policy meeting, most analysts expect a 100bps move to 12.00%. Only two analysts expect a move of 50bps. For end-2023, the bank’s policy repo rate is seen at 9.0%, remaining well in contractionary territory (chart 1).
- Scotiabank Economics’ official published call is a 50bps increase in December. However, given recent developments, we see a 100bps move as the more likely result, while we don’t rule out a 50bps move in January.
- USDCOP forecasts point to a mild appreciation through December 2022. On average, respondents expect a USDCOP level of 4,873 by the end of 2022 and 4,788 by end-2023.
—Sergio Olarte, María (Tatiana) Mejía & Jackeline Piraján
PERU: LOW CEMENT SALES IN OCTOBER POINT TO WEAK PRIVATE CONSTRUCTION, TO BE OFFSET BY PUBLIC INVESTMENT
Cement sales were weak in October, down 5% y/y with a second consecutive decline after a 2% y/y drop in September (chart 2). Considering that public investment rose 53% y/y in October, the decline in sales would have reflected lower private construction, both in infrastructure and in residential housing projects. Year-to-date, cement sales have risen 1.2%, with most of the growth taking place during the first half of 2022. Strong public investment growth will likely outweigh the decline in cement sales to the private sector, and we expect construction GDP growth in October to mildly surpass the 3.1% y/y recorded for September.
For the remainder of 2022 we do not expect a significant drop in construction indicators, and maintain our construction GDP growth forecast for full-year 2022 at 1.2%.
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.