Mexico Weekly Watch January 6, 2012
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Weekly Watch Mexico January 6, 2012 Economic Analysis Output and price data from the last months of 2011 will contribute to specify Arnoldo López Marmolejo forecasts and risks for the first months of 2012 [email protected] Inflation in the second two weeks of December will make a difference to see if inflation is speeding up. Analysts believe inflation in December will come in at 3.7%, a higher-than-expected figure than in November (chart 1). Nonetheless, the inflationary balance for the year is positive since the core component should come in around 3.3% and headline inflation will remain within the central bank's target range. In turn, industrial output for November will provide further information on the economy's good status. These two variables will provide important information on forecasts and risks for the Mexican economy in the coming months. Recent above-expectations output and employment data from the US lead us to believe that output in Mexico could remain on its favorable path. Further, the Fed has continued to improve its communication strategy. This week it announced it will publish forecasts on the target interest rate for Fed funds as part of its economic forecast summary, a long-term level and the period of the first rise in the target rise given its forecasts on future economic conditions. The forecast on the Fed fund rate has been very important for the performance of the interest rate for Treasury securities (chart 2). The announced measure aims to increase transparency around Federal Open Market Committee forecasts (FOMC) and reduce uncertainty on financial markets. Chart 1 Chart 2 Annual inflation forecast December 2011 by 10-year T-bills and 12-month Fed funds rate date forecast (%) 3.80 3.80 3.5 0.35 3.3 10Valores-year Tdel-bills Tesoro a 10 años 3.1 0.30 3.70 3.70 12Fondos-month federales Fed funds futuros rate 12%, m,(right) % (der.) 2.9 0.25 3.60 3.60 2.7 0.20 2.5 3.50 3.50 2.3 0.15 2.1 0.10 3.40 3.40 1.9 0.05 1.7 3.30 3.30 1.5 0.00 jul-11 ago-11 sep-11 oct-11 nov-11 dic-11 3.20 3.20 1q Nov 11 2q Nov 11 1q Dic 11 2q Dic 11 1q Ene 12 Source: Financial Market Analysts' Forecast Survey - Source: BBVA Research Banamex. No part of this document can be reproduced, taken away or transmitted to those countries (or persons or entities from such) where distribution may be prohibited by current law. Non-compliance with these restrictions may constitute an infraction of the law in the pertinent jurisdiction. SEE IMPORTANT INFORMATION AT THE END OF THE DOCUMENT Page 1 Weekly Watch Mexico January 6, 2012 Calendar: Indicators Inflation for December (Monday, January 9) Forecast: Consensus: Previous: 0.71% (3.7% y/y) 0.72% 1.1% m/m (3.48% y/y) Economic Analysis Inflation for end of 2011 will be released on Monday, January 9. We forecast it will come in at 3.7% due to the growth seen in the last 3 months for different prices in the non-core component such Pedro Uriz Borrás as electricity prices, livestock products and to a lesser degree, agricultural prices. The yearly [email protected] inflationary balance is positive since the core component will end around 3.3%, slightly above the Cecília Posadas end of 2010, and shows that despite the different external shocks such as the high commodity [email protected] prices and the financial crisis which has had a major effect on the exchange rate, core prices in Mexico did not increase. Despite this, the balance of inflationary risks has gone from benign to, in the best scenario, neutral. This is the result of the reigning uncertainty surrounding a solution to the European crisis and the economic situation in the US which has led to a lower peso, high commodity prices on international markets and the potential effects that specific domestic supply shocks would have, such as that seen on the corn market. These elements could cause temporary swings in short-term inflation although fundamental factors are expected to continue to act as anchors, such as salaries which are seeing slow growth, and avoid demand pressures on prices. Industrial Output in November (Wednesday, January 11) Forecast: Consensus: Previous: 0.3% (3.0% y/y) N/A -0.5% m/m (3.3% y/y) Industrial output data for November, to be released this Wednesday, may provide more information on the good performance of the economy, supported by the good economic performance in the US. It should be stated that industrial output in Mexico has seen almost continuous growth over the last 7 months, specifically in November, with nearly 80% of domestic automotive production being sent overseas and seeing 0.4% growth over the previous month. In this sense, producer confidence indicators for November also point to some improvement in sentiment (the confidence indicator for November saw 1.2% growth after five months of continuous declines). Taking the pulse of the construction industry will be especially important as an indicator of domestic demand. Chart 3 Chart 4 Annual inflation and components (m/m % Industrial Output and Automotive Industry (% change) change m/m) 10.5 2.5 28.0 9.5 2.0 8.5 1.5 18.0 7.5 1.0 8.0 6.5 0.5 5.5 0.0 -2.0 4.5 -0.5 3.5 -1.0 -12.0 2.5 -1.5 1.5 -2.0 -22.0 Jul-10 Jul-11 Ene-10 Mar-10 Ene-11 Mar-11 Sep-10 Nov-10 Sep-11 Nov-11 May-10 May-11 Ene-07 Ene-08 Ene-09 Ene-10 Ene-11 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 May-07 May-08 May-09 May-10 May-11 INPCCPI Subyacente Core No Subyacente Non-core IndustrialProducción Industrial output (izq.) Producción Auto productionAutomotriz (der.) (right) Source: BBVA Research with INEGI data Source: BBVA Research with AMIA and INEGI data No part of this document can be reproduced, taken away or transmitted to those countries (or persons or entities from such) where distribution may be prohibited by current law. Non-compliance with these restrictions may constitute an infraction of the law in the pertinent jurisdiction. SEE IMPORTANT INFORMATION AT THE END OF THE DOCUMENT Page 2 Weekly Watch Mexico January 6, 2012 Markets Chart 5 Chart 6 Stock Markets: MSCI Indices Foreign exchange: dollar exchange rates Rises on stock (Dec 6, 2011 index = 100) (Dec 6, 2011 index = 100) markets influenced by 106 106 104 104 US manufacturing and jobs data coming Brasil in above expectations. However, they fell 100 100 toward the end of the 102 Latam 102 week due to lower- 96 96 than-consensus México German Asia manufacturing output data. Over-riding 92 92 98 98 upward movement in 1/1/2012 1/3/2012 1/5/2012 12/6/2011 12/8/2011 12/12/2011 12/16/2011 12/20/2011 12/24/2011 12/28/2011 12/14/2011 12/18/2011 12/22/2011 12/26/2011 12/30/2011 the peso. 12/10/2011 06/12/11 09/12/11 12/12/11 15/12/11 18/12/11 21/12/11 02/01/12 05/01/12 27/12/11 30/12/11 México LATAM Asia S&P 24/12/11 Source: Bloomberg & BBVA Research Source: Bloomberg and BBVA Research Note: LATAM includes Argentina, Brazil, Chile, Colombia and Peru. Asia includes the Philippines, South Korea, Taiwan, Singapore, Indonesia and Thailand. Non-weighted averages Chart 7 Chart 8 Risk: EMBI+ (December 6, 2011 index=100) Risk: 5-year CDS (Dec 6, 2011 index=100) 120 120 120 120 Slight fall in risk México aversion over the Brasil week 110 110 110 110 México 100 Emergentes 100 100 100 90 90 90 90 1/2/2012 1/5/2012 1/2/12 1/5/12 12/6/2011 12/9/2011 12/6/11 12/9/11 12/12/2011 12/15/2011 12/18/2011 12/21/2011 12/24/2011 12/27/2011 12/30/2011 12/15/11 12/18/11 12/24/11 12/27/11 12/30/11 12/21/11 12/12/11 Source: Bloomberg & BBVA Research Source: Bloomberg & BBVA Research Chart 9 Chart 10 10-year interest rates*, last month Carry-trade Mexico index (%) 0.45 0.45 Increase in Mexico 6.8 2.6 and US interest rates 0.40 0.40 6.6 2.4 thanks to optimism 0.35 0.35 from higher-than- México (izq) 0.30 0.30 expected US figures 6.4 2.2 0.25 0.25 EEUU (der) 6.2 2.0 0.20 0.20 0.15 0.15 6.0 1.8 06/01/09 09/01/09 03/01/10 06/01/10 09/01/10 12/01/10 03/01/11 06/01/11 09/01/11 12/01/09 06/12/11 09/12/11 12/12/11 15/12/11 21/12/11 24/12/11 27/12/11 30/12/11 02/01/12 05/01/12 18/12/11 Source: Bloomberg & BBVA Research Source: BBVA Research with data from Bloomberg No part of this document can be reproduced, taken away or transmitted to those countries (or persons or entities from such) where distribution may be prohibited by current law. Non-compliance with these restrictions may constitute an infraction of the law in the pertinent jurisdiction.