Tuesday, February 19 2019 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Updated: 1 hour 18 min ago
This paper analyses the development of financial markets in Argentina, Colombia, Mexico and Peru in the context of the middle-income trap. This is particularly relevant for these economies, since well-developed and properly-functioning financial markets are fundamental to achieve high income status on a sustainable basis.
Home sales grew in September, but at a slower rate. Credit approvals for home purchases nevertheless rose more in October than in previous months. Prices continue to trend upwards, but less sharply in Q3 2018. While building authorizations fell in September, the industry did continue creating jobs.
October was the 31st consecutive month of positive year-on-year growth in remittances, with a total of US$2.94 billion being sent to Mexico, representing year-on-year growth of 3.4%.
Yesterday’s positive mood in financial markets vanished due to rising doubts on the hold-off on new tariffs between China and the US, which seemed to be shown only as a temporary relief.
Positive tone after the announcement of a trade tariff truce between China and the US at last weekend’s G-20 summit. Additionally, oil prices rebounded ahead of the outcome of Thursday’s OPEC meeting as cuts in oil supply could be implemented. After the tone of last week’s Powell speech, markets will remain focus on data, this week: employment and consumer confidence
CPI fell by 1.44% in November, lower than (consensus -0.3% vs. BBVA-Research estimates 0.1%). Annual CPI declined to 21.6% from 25.2% in October. Reversal of discount campaigns, tax incentives and unfavorable base effects could bring a transitory increase in CPI in 1Q19; but given the recent supportive external financial conditions, risks are cumulating on the downside.
It has become common to see spikes in oil prices. Since October the price of Brent crude has fallen by 30% to around US$59 per barrel, its lowest level since October last year.
Since the invention of the steam engine at the end of the eighteenth century, technological innovation has been the main source of growth in developed economies. In particular, it is the key reason why today’s average Spanish worker earns eight times as much as at the beginning of the twentieth century, for one third fewer hours.
The US-China relationship seems to get a favourable turn after a highly anticipated dinner on last Saturday between Trump and Xi on the sidelines of the G20 summit in Argentina. In particular, both sides agreed to keep the trade war from escalating with a promise to halt the imposition of new tariffs for 90 days and intensify their negotiations in the following months.
Although the consultation indicates that the new refinery in Dos Bocas will cost 50 billion pesos (0.22% of GDP), we consider that it refers only to the first stage, since the incoming Secretary of Energy, Rocío Nahle, estimated that it would cost 160 billion pesos (0.69% of GDP) and would be completed in 3 years.
Events in the US drove financial markets during the week as the comments of Powell and the release of the latest FOMC minutes posed some doubts about the pace of Fed tightening in 2019. The Brexit negotiation process and Italy’s budget were also in the spotlight, while geopolitical tensions in Russia increased ahead of the G-20 meeting.
Highlights: BCBS and FSB issue reports on implementation of latest reforms and recommend adopting agreed requirements (e.g. NSFR, TLAC or large exposures). EC issues progress reports on Banking Union, NPLs and CMU. ECB clarifies materiality threshold for credit obligations past due. FRB, BoE and ECB publish financial stability reports. ESAs issue RTS preparing for Brexit.
Financial markets in cautious mode, with investors waiting for today’s release of FOMC minutes after yesterday's comments by Powell, which had a significant impact on US markets. The release of estimates of the impact of Brexit by the Bank of England and other institutions also focused the market’s attention in a day that saw plenty of economic indicators.
In September 2018, the nominal annual growth rate of traditional deposits (demand + term) of commercial banks was 8.8% (3.6% real), lower than the previous month (11.5%) and also than the nominal growth rate registered in September 2017 (10.8%).
The stabilization of public debt as a share of GDP is one of the goals that the incoming federal public administration has set out to reach. Keeping the historical balance of PSBR stable around 46.5% of GDP in 2019, ceteris paribus, will be possible if the federal government achieves a minimum primary surplus of 0.5% of GDP.
Fed Chairman Powell’s speech drove the USD to depreciate after markets read his speech as “dovish”. He said that interest rates are “just below” neutral levels. In another front, financial markets remained calm awaiting the outcome of the Xi-Trump’s meeting at the G-20 summit.
In September 2018, the nominal annual growth rate of the balance of the current loan portfolio granted by commercial banks to the private sector was 11.2% (5.9% real). This rate was equal to the previous month and lower than the same month of 2017 (12.2%).
Increasing trade fears among investors ahead of Trump-Xi meeting at the G-20 summit as US President Trump threatened to go further with tariffs on Chinese imports unless China opens its markets to competition from US companies.
Net profit in the first half of 2018 was 6,654 million euros compared with losses of 6,170 million in the first semester of 2017, period in which the resolution of Popular had an impact. Defaulting within the system as well as the deleveraging of the private sector continues. The system’s efficiency and profitability improved in the first half of the year compared to 2017.
Among the various types of risk that the financial system is currently facing is that of cyber-attacks. The national producer price index for the construction sector increased by 8.1% in the third quarter of 2018, but we expect that at year-end 2019 the increase will have slowed to below 5% on an annual basis.