Protests in China over unsustainable COVID-19-zero policies coupled with record-high cases have resulted in downbeat markets to start the week ahead of an eventful international data and events calendar. Markets will monitor China developments alongside US jobs and inflation data and a speech from Powell on Wednesday ahead of the Fed’s blackout period on Saturday.
Global equity markets are broadly in the red, with US futures targeting a 0.8% in cash markets are the open while the negative China backdrop is weighing on commodity prices. Latam currencies are nevertheless slightly stronger to start the week, notably outperforming their commodity and high-beta (though DM) peers, the AUD, CAD, and NZD.
Weekend developments were limited in Latin America outside of Peru (see below) and there’s little of note in today’s regional calendar after Mexican October international trade data published this morning. The INEGI reported a widening of Mexico’s trade deficit to USD2.0bn from USD0.9bn in September as exports fell by about USD3.1bn against a roughly USD2bn decline in imports.
In the week ahead, we’ll focus on Peruvian CPI figures, unemployment data across the region, Banxico’s quarterly report, and Chile’s economic activity data (see Latam Weekly for more details).
Partial Agreement on Strikes in Chile
News that BHP have reached an agreement with workers at Chile’s Escondida copper mine to avoid a strike has given the CLP a solid push ahead of the North American open. The country’s government has also partially defused a truckers’ strike (owing to high fuel prices and drivers’ safety) as they reached a deal with two truckers’ unions.
Peru Political Risks Linger
The trading week ended with a bang as Peru’s prime minister and the rest of the presidential Cabinet resigned on Friday after Congress denied a vote of confidence proposal that triggered departures (see Latam Flash for more details). The PEN had its worst week in seven with a 0.7% decline amid political risks—although this follows solid gains through the better part of November.
There weren’t too many fireworks over the weekend in Peru—as we had perhaps expected. Castillo appointed a rearranged Council of Ministers to be led by new PM (the fifth of Castillo’s presidency so far) Betssy Chavez; note that fourteen of nineteen ministers remained from the pre-resignations CoM (including Fin Min Borneo). According to a poll carried out last week, with results published yesterday, 87% of those surveyed believe new general elections should be called if Castillo is suspended by Congress, a proposal set for debate; on the other hand, the president’s approval rating increased to 31% from 25% last month.
Political developments in Peru are a key risk for local assets this week, but the calendar highlight will be CPI data due Thursday. We expect that stubbornly-high inflation will motivate another 25bps from the BCRP at its policy decision next week.
Haddad Lined Up for Brazil’s Fin Min
Haddad will join Lula today in Brasilia, reinforcing expectations that the former Sao Paulo mayor will lead the incoming president’s Finance Ministry. Lula’s transition team, have insisted on their intention to abide by fiscal rules and restraint—notwithstanding the exclusion of social spending funds from the country’s spending cap—but markets are not impressed by the likely selection of Haddad who on Friday said “fiscal and social responsibility are not in opposition for Lula.” What he did not specify, however, was how the incoming government intends to overhaul the country’s fiscal rule and markets are unwilling to take pressure off Brazilian markets and wait until January when plans may be clearer.
—Juan Manuel Herrera
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