April 22th, 2016
Insight to Economics
HR Ratings Weekly Journal
Market
Relevant Data
abr-15
abr-22 Weekly Change End of 2016*
End of 2017*
Exchange Rate (pesos)
17.39
17.42
(+) 3 cents
17.29
17.05
U.S. Federal's Fund Rate
0.37%
0.37%
n.a.
0.75%-1%
1.5%-1.75%
Reference Rate
3.75%
3.75%
n.a.
3.75%
4.00%
10-Year M Bond
5.84%
5.92%
(+) 8 basis point
6.25%
6.50%
10-Year U.S. Treasury Note
1.75%
1.89%
(+) 14 basis point
2.55%
2.85%
UDIs (pesos)
5.4504
5.4542
(+) 0.378 cents
5.5628
5.7304
* HR Ratings forecast
National News
Agustin Carstens on the peso- According to the head of the central
bank, the peso is still undervalued and can could revalue in the next
weeks. However, he stated that he prefers to see the peso strengthen
through interest rates, as the economy can withstand an increases in
the cost of credit; and not by using international reserves, which
currently stand at US$177.7 billion (bn).
This could be an early signal for further interest rate movements in the
months to come. Many analyst in the market expect the reference rate to
rise only 25 basis points for the rest of the year. The comments of the head
of Banxico jeopardizes this estimates.
The SHCP’s growth expectations- As of today, the growth
expectations of the SHCP remain at its 2.6%-3.6% range. The
Treasury Secretary remains optimist about this forecast; however, he
stated that this numbers will be revised by the time the INEGI publishes
its GDP data for the first quarter of the year on May 20th.
The graph below shows how the private sector expectations have dropped
for 2016 and 2017 economic growth, according to Banxico’s survey. This
could imply that the SHCP could also lower its forecast range. The Mexican
economy will continue to face challenges as the manufacturing sector
remains weak and manufacturing exports stagnant.
Real growth expectations from the private sector for 2016
4.0
3.8
2016 forecast
3.6
Mario Draghi on the ECB interest rates- After a
news conference last Thursday in Frankfurt, the
head of the ECB stated that lowering the bank
reference rate remains as an option and claimed
that the policy proposed by its German critics
could further delay the return to economic growth.
Criticism has grown louder since its stimulus
program of $1.7 trillion in March.
President Obama in the UK- The US president is
in Great Britain to support Prime Minister
Cameron’s effort to convince a majority of
referendum voters to opt, in June, in favor of the
UK’s permanence in the European Union. Mr.
Obama’s participation in the debate has aroused
cries of intervention by members of the Brexit
camp and it is not clear whether his efforts will help
the Remain side or be counterproductive. The
passions of the UK debate and the frustrations with
and resulting controversies over a thus far
unsuccessful EU monetary policy are causing severe
strains within the “European project”.
As for the efficacy of monetary policy to deal with
structural and demographic causes to weak growth,
the criticism against a lax monetary policy is not
without some basis. The United States implemented
its Quantitative Easing program from November 2008
to late October 2014, a period in which the FED’s
balance sheet grew by about US$1.6 trillion.
However, this aggressive policy did not produce a
typical post-recession recovery. Between 2009 and
2014 the U.S. economy grew only 2.05% in average
annualized real terms. In contrast, the annualized
real growth between 2002 and 2007 reached 2.87%.
This suggests that the policy did little to transform the
U.S. economy, except perhaps to create still
unknown asset bubbles. The graph below shows the
evolution of QE.
2017 forecast
Excess Reserves of Depository Institutions (Billions of US$)
3.4
$3,000
3.2
$2,500
3.0
$2,000
2.8
$1,500
$1,000
2.6
$500
oct.-15
feb.-16
oct.-14
jun.-15
feb.-15
oct.-13
jun.-14
feb.-14
oct.-12
jun.-13
feb.-13
oct.-11
jun.-12
feb.-12
oct.-10
jun.-11
feb.-11
oct.-09
jun.-10
feb.-10
oct.-08
jun.-09
feb.-09
oct.-07
jun.-08
feb.-08
oct.-06
jun.-07
feb.-07
oct.-05
jun.-06
jun.-05
feb.-06
Source: HR Ratings w ith data from Banxico.
$-
feb.-05
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
2.4
Source: HR Ratings w ith data from U.S. FED
International News
Michel Temer ready to take the Brazilian presidency- The current
vice president claims that the proceedings against the current
president, Dilma Roussef, are in line with the constitution and that he
is ready to take the lead in case of a trial in the Senate. Despite the
deep economic and political crisis in the country, Brazil’s international
reserves remain at US$376.6bn as of April 19th, according to its central
bank.
U.S. jobless claims- On the week that ended on
April 16, jobless claims fell to 247 thousand,
seasonally adjusted. This represent the 53th week
in a row which claims remain below the 300
thousand mark. This trend was lastly seen over
four decades ago. However, because of Easter
week, seasonally adjusted data could be distorted.