–Mexico in Election Mode as Consumers Feel Downturn
–Argentina to Launch Tax Amnesty as Foreign Reserves Dwindle
BUENOS AIRES, MEXICO CITY AND SAO PAULO, JULY 1 (MNI) – Brazil state
statistics agency IBGE will release the June IPCA consumer price index Friday,
just days before the next Copom monetary meeting.
The market consensus is June inflation rose only 0.32%, but inflation is
generally low in this time of year for seasonal reasons, so core numbers may
matter more than the headline.
And since June 2012 inflation was only 0.08%, a 0.32% result would keep
inflation on a higher trajectory than last year and worsen the 12-month rate,
already above the 6.5% upper band margin of the central bank target range.
After the central bank’s pledge last week to fight inflation at a “suitable
pace,” consensus has returned that the Copom will raise the Selic 50 basis
points July 10, not the 75 bps some traders had been betting on.
The question now is how long the tightening cycle will last
The central bank’s “Focus” survey of local financial institutions indicates
an analyst consensus that the Selic, currently 8.0%, will go to 9.0% and stay
there.
But most fixed-income traders are betting the Selic will rise to at least
9.5%.
On the political front, Congress is responding to protests which are going
into their third week.
The Senate passed a bill increasing penalties for corruption, while a
committee approved a constitutional amendment to make legislators’ votes on
punishing their colleagues public.
Under the present system of secret voting, often a majority claims to have
voted to expel a corrupt colleague, but when votes are counted, it is seen that
only a minority did so.
These proposals all must pass several other votes before becoming law.
If President Dilma Rousseff continues to fall in the polls, her reelection
next October may be in doubt.
Her most likely opponent is Aecio Neves, senator and former governor of the
midwestern state of Minas Gerais and a member of the PSDB party that ended
hyperinflation and privatized state monopolies.
Markets might welcome increased chances of a Neves administration as
increasing the likelihood of a return to privatizations and macroeconomic
orthodoxy.
The IBGE releases May industrial production Tuesday.
-Mexico in Election Mode as Consumers Feel Downturn
Expect plenty of political rhetoric and not much real action on the reform
front this week in Mexico ahead of elections in 14 states July 7.
While it now appears the leftist Democratic Revolutionary Party (PRD) will
present its own energy reform initiative in parallel with that backed by
President Enrique Pena Nieto in September, analysts agree the government’s
multipartisan efforts likely will survive electoral drama and parties will reach
a broad consensus compromise by October opening the nation’s gas and oil
industry to badly needed private investment.
State statistics agency INEGI releases producer and consumer confidence
data Wednesday with some estimates for June consumer confidence falling below 95
on the index with no turnaround expected until the economy demonstrates a solid
rebound, hoped for in the third quarter.
The slowdown in the second quarter, driven by weak external demand and a
sharp drop in public spending, helped lower the confidence index to 95.2 in May
down from 100.1 in January 2013.
Polls from the Bank of Mexico and Banamex, coming Monday and Friday
respectively, should shine light on private sector perception of that slowdown
and the impact it could have on the economy through the rest of the year and
2014, as well as demonstrate the strength of hopes for a rebound later this
year.
HSBC releases its June manufacturing PMI Monday which held steady at 51.7
for the second month in May but has been on a declining trend since peaking in
December, leading the firm to cut its growth forecast.
The Mexican Finance Executives Institute (IMEF) offers its June
manufacturing index Monday after falling into sub-50 contraction territory to
48.3 in May, the lowest level it has seen since June 2009. May trade data
showing a pickup in exports with the auto industry and other manufacturing
sectors could indicate a turn around in manufacturing in June.
The IMEF also publishes its non-manufacturing index for June after
registering a barely expansionary 50.7 reading for May.
The Bank of Mexico publishes May remittances Monday with forecasts
suggesting a tenth straight month of declines. Also look for May leading
indicators report from INEGI Thursday.
-Argentina to Launch Tax Amnesty as Foreign Reserves Dwindle
Argentina’s government this week will launch a tax amnesty and a special
credit card in another effort to reverse declining foreign reserves, consumption
and investment.
The government will open the amnesty Monday, allowing companies and
individuals to voluntarily repatriate undeclared funds – held overseas or
locally – without penalties. Participants can exchange the funds for tax-free
bonds and certificates of deposit through Sept. 30.
The government estimates the undeclared assets at $160 billion, and with
the entry of at least a portion there is the possibility of rebuilding central
bank reserves that have sagged 29% to $37.8 billion from a peak of nearly $53
billion in January 2011.
An influx of dollars would also help boost liquidity to shore up the
exchange rate, which has declined on the official market by 19% to 5.7358 pesos
to the U.S. dollar over the past year and by more on the black market, where it
is trading at 7.60-8.00. This is largely because of demand has been on the rise
for a shrinking number of dollars.
The hard-currency reserves are a major source of financing for the state
and for debt payments since the government has yet to fully settle a $100
billion default from 2011, limiting its access to global financial markets.
Economists expect most of the repatriated funds to go into real estate,
which the government hopes will help rekindle construction activity, a big
source of activity and jobs.
Construction activity, the major destination for investment over the past
decade, fell 1.3% in the first quarter of 2013 on the year, extending a decline
that began in the second quarter of 2012. This has been the worst performance
for the sector since a 2008-2009 slowdown, when a global economic crisis pushed
the economy into a brief recession.
The government wants to revive activity ahead of an Oct. 27 midterm
congressional election, when the ruling Front for Victory party will have its
majority in both houses at stake.
A lesser amount of money from the amnesty is expected to go into three-year
sovereign bonds paying 4% annual interest because of the greater skepticism in
lending to a country with a history of debt defaults and seizures of bank
deposits, economists say.
President Cristina Fernandez de Kirchner, a critic of selling debt on
global markets, needs the money for infrastructure and energy projects as the
train system runs into the ground and dwindling oil and natural gas production
pushes the country to ramp up energy imports.
The amnesty CDs, called Cedins, will trade publicly on the secondary
market, starting Monday.
The three-year infrastructure bonds, paying 4% annual in dollars, will be
issued July 17.
Also this week, the government will launch SuperCard, a credit card for
making purchases at home appliance stores and supermarkets.
Commerce Secretary Guillermo Moreno, the president’s chief inflation
fighter, hopes to help cut inflation – estimated at 24% annually by private
economists – with the card, which carries a 0.75% financing commission compared
with 3% for traditional cards.
The government will report June tax collections Monday or Tuesday, while an
auto manufacturers association will release vehicle production, export and sales
data for the same month later in the week.
* Editor: Heather Scott; Follow us on Twitter: @MNILatamWatch
–MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com
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