Espresso: May 3rd

Espresso for May 3rd

 

QUOTE OF THE DAY                                                                                            

“Large part of the pass through from the weaker peso has probably already happened, and  the currency’s recent strength will help curb inflation,” Central bank chief Jose Dario Uribe said in a radio interview talking about Colombia’s central bank unexpected decision to lift its key rate to 7% on Friday.

 

WHAT MARKETS ARE TALKING ABOUT


BRAZILIAN MARKETS AND VOLATILITY

Brazil’s real weakened nearly 2% yesterday, hurt by a drop in global commodities prices and heavy central bank intervention. Still, the currency is up 12.6% YTD and the Bovespa index up 24%. Markets are expecting a Dilma impeachment, for sure. But yesterday before the closing bell, a Moody’s team of analysts led by Erick Rodrigues said in a report that the number of companies facing high funding risks rose to 33% last year, from 28% in 2014. With bankruptcy filings up 150% this year and the economy poised to contract by about 4% for a 2nd straight year,  NPLs are set to rise. We recently published a note (here) for Seeking Alpha on why we don’t love Brazilian banks.

And here is how the economy is performing against regional peers:

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And here is how the sovereign credit ratings in Brazil have behaved in the last years. Both S&P’s and Moody’s downgraded their rating on February:

 

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3 REASONS TO BE LONG MEXICO

We published in after hours a note on Mexico’s Friday GDP reading, which expanded 2.9% on annualized basis. That is a 0.8% QoQ increase following a 0.5% QoQ (and 2.2% YoY) uptick in 4Q15. Formerly, 2.5% GDP expansion in 2015 came below market expectations but above the 1.4% and 2.1% expansion rates for 2013 and 2014, respectively. Are these growth rates mediocre for an emerging market like Mexico? Yes. Is it bad under current global economic conditions? Not much, especially when considering Brazil’s 4% back-to-back contractions. Check our complete note on the Mexican economy’s fundamentals (here).

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LATAM SOVEREIGN RATINGS SNAPSHOT

Here is an overview of how the three big credit ratings agencies are grading sovereign debt in Latin America. Chile remains the only country in the region with full A-rating status. Mexico and Peru are rated A3 by Moody’s but BBB+ by S&P’s and Fitch. Moody’s recently reiterated Mexico’s sovereign rating. The last observed change within our sample was Argentina’s upgrade from to B3 from Caa1 after the country finally settle its long-standing dispute with U.S. hedge funds. The IMF’s revisions to GDP growth estimates after 2016 also paint an encouraging picture for Argentina. Can positive newsflow be sustained? We’ll see.

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