- A Korean special prosecutor indicted Samsung chief Jay Y. Lee on bribery charges.
- Korean press is reporting that China has told its travel agents to halt sales of holiday packages to South Korea.
- Bulgaria’s interim government said it may apply to join the eurozone within a month.
- South Africa’s main labor union Cosatu accepted a government-proposed minimum wage.
- New Commerce Secretary Ross appears to be taking a less confrontational stance with regards to Nafta.
- Press reports suggest Mexico may request a swap line from the Fed.
- Peru’s central bank cut reserve requirements again.
Pemex, Mexico’s national oil company, slashed its 2016 net loss by nearly 60 per cent to 296bn ($14.3bn) pesos from 713bn pesos in 2015 amid cost-cutting, and Juan Pablo Newman, finance director, told a conference call “finances are stable, but can certainly be improved”.
In the fourth quarter, Pemex trimmed its net loss by 91 per cent to 32.2bn pesos from 360bn. It was its 17th straight loss, but as a sign of the improving trend, Mr Newman noted that with 2016 average production of 2.154m barrels per day, crude output beat the company’s target.
He said efforts to reduce costs and improve efficiency would “continue to bear fruit” and highlighted key associations, asset sales plus the sale this month of the biggest-ever emerging market eurobond as signs that Pemex is on the right track.
- Press reports suggest that China’s central bank has ordered banks to limit new loans in Q1.
- Fitch revised the outlook on Nigeria’s B+ rating from stable to negative.
- Russia announced details of the FX purchase plan.
- Brazil’s central bank confirmed it will simplify the reserve requirement system for banks.
- S&P cut the outlook on Chile’s AA- rating from stable to negative.
- Mexican announced another hike in fuel prices will take place on February 4.
- Mexican President Pena Nieto canceled a planned meeting with President Trump as tensions flare
In the EM equity space as measured by MSCI, Mexico (+5.1%), Russia (+4.5%), and Poland (+4.0%) have outperformed this week, while UAE (-1.5%), Hungary (-0.1%), and South Africa (flat) have underperformed. To put this in better context, MSCI EM rose 2.2% this week while MSCI DM rose 1.1%.
In the EM local currency bond space, Colombia (10-year yield -17 bp), the Philippines (-16 bp), and Peru (-10 bp) have outperformed this week, while Poland (10-year yield +18 bp), South Africa (+13 bp), and Korea (+7 bp) have underperformed. To put this in better context, the 10-year UST yield rose 3 bp this week to 2.50%.
The Mexican Peso is plunging once again this morning – very close to all-time record lows – as fears spread that Ford’s decision yesterday may become the norm following president-elect Trump’s tweet that “this is just the beginning.”
Bloomberg notes that Ford’s move, which follows a similar decision by United Technologies Corp.’s Carrier in November, makes it all the more important for Mexican President Enrique Pena Nieto to dissuade other foreign companies from following suit in the face of Trump’s wrath. Mexico’s northern neighbor buys 80 percent of the Latin American nation’s exports, and luring U.S. companies is a cornerstone of the government’s plans to modernize industries from construction to oil.
“A lot’s at stake, considering that since 1999 close to 46 percent of foreign direct-investment flows into Mexico originated in the U.S.,” said Alonso Cervera, chief Latin America economist for Credit Suisse Group AG. “Investors will likely be anxious to see which other companies may do the same.”
- China will raise the sales tax on small cars to 7.5% in 2017.
- New methodology used by Turkstat to measure Turkish GDP has led to significant upward revisions.
- Turkish authorities are growing more concerned about the weak lira.
- Fitch moved the outlook on Chile.
- Chile’s central bank shifted to an expansionary policy bias.
- Colombia selected Juan Jose Echavarria to be the new central bank governor.
- Fitch revised the outlook on Mexico’s BBB+ rating from stable to negative.
- Banco de Mexico hiked rates by a larger than expected 50 bp.
In the EM equity space as measured by MSCI, Hungary (+4.3%), Russia (+3.2%), and Turkey (+2.3%) have outperformed this week, while Brazil (-3.8%), China (-3.6%), and Chile (-3.5%) have underperformed. To put this in better context, MSCI EM fell -2.3% this week while MSCI DM fell -0.1%.
In the EM local currency bond space, Poland (10-year yield -15 bp), Korea (-4 bp), and Czech Republic (-4 bp) have outperformed this week, while the Philippines (10-year yield +41 bp), Indonesia (+32 bp), and Hong Kong (+32 bp) have underperformed. To put this in better context, the 10-year UST yield rose 12 bp this week to 2.59%.
This is as expected.
- rate hike seeks to counteract inflationary pressures and keep inflation expectations anchored
- closely watching for any pass-through from peso to prices
- bank does not have exchange rate target
- will also be vigilant on relative monetary policy stance with US without ignoring the output gap
- Mexico is in a position of strength but needs to additionally strengthen macroeconomic fundamentals
- Expects inflation to end year slightly above 3% target rate/return to close to 3% in 2018
Stocks tumbled Tuesday, with the S&P 500 posting its sixth straight loss as nervous investors continued to monitor the run-up to the 2016 election and wait for news from the Federal Reserve, which concludes a two-day policy meeting on Wednesday.
The Dow Jones industrial average ended down 105 points, or 0.6%. The Standard & Poor’s 500 index fell 0.7% and the Nasdaq composite dropped 0.7%.
Increasingly, investors’ focus has been the presidential election, as polls between Hillary Clinton and Donald Trump appear to have tightened following last week’s news that the FBI had opened a new investigation into Clinton’s private email server. The narrowing in the race has introduced a new element of uncertainty into the market, something that analysts say is likely to keep trading in check.
There were signs of nervousness in the market. Gold prices rose more 1% and the Mexican peso, which has become a proxy for Trump’s chances to win, has been falling steadily against the U.S. dollar since Friday. The peso is down 1.2% against the dollar, a significant move in currency trading.
Investors are also keeping an eye on the Federal Reserve as policymakers started its two-day meeting on Tuesday, where it is widely expected the nation’s central bank will keep interest rates stable.
U.S. manufacturing grew last month at the fastest pace since July, a sign that American factories are coping with economic weakness overseas and a strong dollar. The Institute for Supply Management says its manufacturing index came in at 51.9 up from 51.5 in August. Anything above 50 signals growth. Production and export orders grew faster in October.
U.S. stocks rallied Tuesday following the first presidential debate, as investors digest the first face-off between Hillary Clinton and Donald Trump.
In the first trading session following the first of three face-to-face battles between the Democratic and Republican nominees for president, stocks broke a two-day losing streak, suggesting that markets are giving the first-debate decision to Clinton, although far from a knockout.
In general, Wall Street views Clinton as a more favorable candidate, as she and her policies are viewed as more of a known quantity than Trump, who investors view as a candidate that would inject more uncertainty into financial markets given his views on trade, immigration and other issues.
The Dow Jones industrial average rose 133 points, or 0.7%, to close at 18,228. The broader Standard & Poor’s 500 stock index gained 0.6% to 2160 and the Nasdaq composite index rose 0.9% to 5306.
Stocks were also reacting to good news on consumer confidence. The Conference Board reported that its index of consumer confidence this month jumped to a nine-year high of 104.1, which was better than August’s 101.8 reading and consensus for September of 99. In housing news, the S&P CoreLogic Case-Shiller 20-city price index was flat in July, in line with estimates, and “consistent with the moderate recovery in the housing market.