Latin America & Brazil: The Week Ahead

Mexico reports June trade Monday. Second-quarter GDP will be reported Thursday, which is expected to contract -21.2 percent y/y vs. -1.4 percent in the first quarter. Mexico’s economy remains weak, “so further easing is expected despite the uptick in inflation to 3.59 percent year over year in mid-July,” Win Thin, Global Head of Currency Strategy with Brown Brothers Harriman said in a note to clients on July 26.

The next policy meeting is scheduled for August 13 and another 50 basis point cut to 4.5 percent is expected. “The relatively firm peso should give the bank confidence to maintain its pace of easing,” Thin wrote.

Brazil will report its June current account and FDI data Tuesday. The current account gap has been narrowing “due to the sharp economic slowdown, with FDI easily covering the deficit,” according to Thin, however, the fiscal deficit is more concerning as the 12-month nominal consolidated deficit rose to -8.8 percent of GDP in May.

June central government budget data will be reported Thursday, followed by consolidated budget data Friday. The next COPOM meeting is scheduled for August 5 and the CDI market is pricing in good odds of another 25 bp cut to 2.0 percent.

Chile is set to report June retail sales and IP Friday. The central bank will also release its minutes on Friday. Chile has kept rates steady for three straight meetings after the last 50 bp cut to 0.5 percent in March. “At the last meeting, the bank said it would keep rates at the technical lower bound for the forecast period and will continue with its current asset purchase program,” Thin explained. “The proposal to allow citizens to withdraw funds from their pension savings could lead to some volatility in local asset markets, though the peso has the potential to strengthen as off-shore investments are sold and repatriated.”

Colombia’s central bank will meet Friday and a cut is expected of 25 bp, bringing the rate down to 2.25 percent. “After three straight months of 50 bp cuts, the bank slowed the pace to 25 bp in June due to concerns about risks to the financial system from large-scale capital outflows,” Thin said. “Despite the relatively firm peso, the bank likely to maintain that slower pace this week.”