Daily

Market Economics Friday, 22 October 2010

Daily Latin America Spotlight

Brazil: Unemployment rate reaches new record low.
Mexico: Today, we expect the H1 October CPI to post an increase of 0.51% bw/bw
on the headline and 0.16% bw/bw on the core. Also watch today for the release of
the September trade balance.
Chile: Minister Larrain unveiled measures seeking to improve exporters’
competitiveness; no announcements were made in terms of directly affecting the
level of the currency, contrary to market expectations.
Key Event Colombia: COP weakened amid speculation of policy announcements (that did not
materialize).
Argentina: Heavy day in terms of economic data releases: September IP and
merchandise trade figures, and August real GDP proxy will all be unveiled this
afternoon. The relevant committees paved the way for the INDEC reform to be
discussed in the lower chamber.
Peru: Potential measures to cap the currency’s strength were also the focus in Peru
yesterday.

accelerated to 11.3% y/y in September from 10.1% in

BRAZIL August – significantly above inflation. In real terms,
„ All-time low. The unemployment rate (UR) declined average wage earnings (per worker) were up 6.5% y/y
from 6.7% in August to 6.2% in September, in September.
significantly below consensus (6.5%). On a In all, strong data. Labour markets are tightening,
seasonally adjusted basis, we estimate that the UR fell and real wages are rising. Coupled with a high level
from 6.6% to 6.3%, reaching a new low in the of consumer confidence and expansionary credit
admittedly short current series that started in 2002, conditions, tight labour markets provide plenty of fuel
and well below the lower bound of the central bank's for domestic demand.
NAIRU estimated range (7.5~8.5%).
Details are encouraging. While the fall in the MEXICO
unemployment rate was in part associated with a „ Today, we expect the H1 October CPI to post an
decline in the labour force, job creation increased too increase of 0.51% bw/bw on the headline and
– all seasonally adjusted. On our estimates, 0.16% bw/bw on the core. On a 12-month basis,
September posted a net job creation of 42k s.a., while headline inflation should increase from 3.70% y/y in
the labour force fell by an estimated 35k s.a. Looking H2 September to 3.83%. Core inflation should actually
across sectors, the largest job creation came from the decline from 3.62% to 3.55% yy. October is the month
services sector (an estimated 73k s.a.) and from the when electricity rates increase as a result of the end of
manufacturing sector (an estimated 16k s.a.). the summer subsidies. This will put pressure on public
Real wages are rising too. Nominal average wage prices.
earnings (per worker) accelerated, rising 1.8% m/m Based on the behaviour of producer prices during the
s.a. in September, following gains of 0.9% m/m s.a. first half of the month, the rise in agricultural prices is
in August and 2.0% m/m s.a. in July. On a 12-month likely to have accelerated from 2.0% bw/bw in H2
basis, growth in nominal average wage earnings September to 2.3% bw/bw.
Major Data Releases and Events
Country Indicator Last BNP Paribas
Mexico Bi-weekly CPI bw/bw : H1 Oct 0.40% 0.51%
Bi-weekly Core CPI bw/bw : H1 Oct 0.34% 0.16%
Trade Balance : Sep Preview USD -699 mn USD -320 mn
Unemployment Rate : Sep 5.44% 5.40%
Argentina Trade Balance : Sep USD 1054 mn USD 830 mn
Industrial Production % y/y: Sep 10.1 9.7
Industrial Production % m/m (sa): Sep 2.0 2.0
Economic Activity (EMAE) % y/y: Aug 8.1 8.6
Economic Activity (EMAE) % m/m: Aug -0.2 0.6

www.GlobalMarkets.bnpparibas.com Emerging Market Research

Marcelo Carvalho 55 11 3841 3418 Florencia Vazquez 54 11 4875 4363 Italo Lombardi 1 212 471 6599
marcelo.carvalho@br.bnpparibas.com florencia.vazquez@ar.bnpparibas.com italo.lombardi@americas.bnpparibas.com
„ Watch today the release of September’s trade
balance. We expect the trade balance for
September to post a deficit of USD 320mn, up from
a deficit of USD 699mn in August. We expect
exports of manufacturing goods to be flat in
September, after a slight increase in August.
Intermediate goods imports should continue to
outpace exports of manufactured goods, as
inventories are increased.
We expect total exports to increase by 22% y/y with
some momentum coming from oil exports - as crude
prices rose in September. Imports should grow by
18.6% y/y.
„ Separately, we expect the unemployment rate to
have been little changed in September at 5.4%.
CHILE
„ Minister Larrain unveiled measures seeking to
improve exporters’ competitiveness; no
announcements were made in terms of directly
affecting the level of the currency, contrary to
market expectations. Finance minister Larrain
announced a new mechanism with the aim of
benefiting exporters by diminishing the administrative
time needed to complete a shipment from 21 to 10
days. According to official estimates, each day spent
in administrative dealings has a cost of USD 600mn in
terms of exports. Thus, the proposed initiative could
boost Chilean exports by up to USD 6bn (equivalent to
9% of exports during the last 12 months). The
measure seeks to alleviate the negative impact on the
sector’s profitability from CLP strength (which has
recently led to strong complaints). But the effects of
this positive initiative will not be felt soon,
unfortunately. A newly-appointed committee will
evaluate today’s announcements and the system is
expected to be fully implemented only by end-2012.
Exporters welcomed the official announcements,
but continued to demand more immediate
measures to address the issue of lost
competitiveness. Market expectations regarding
official announcements had built up significantly in
recent days and the fundamentally-driven CLP
strength is likely to resurface in coming days following
the lack of measures targeting the level of the
currency. Indeed, the peso closed modestly weaker
yesterday but bounced back visibly from its intra-day
low of USDCLP 488.
COLOMBIA
„ COP weakened amid speculation of policy
announcements (that did not materialize). A
meeting held yesterday morning between President
Santos and the central bank board had sparked
concerns among investors about potential
announcements of additional measures to curb the
currency’s strength. No decisions were taken in the
end in this regard yesterday, but the currency still
ended the day near its intra-day lows reflecting
ongoing market concerns. Alternatives discussed by
market participants include an increase in announced
USD purchases by the central bank (which so far has
not materialized even though there are no constraints
on doing so), the introduction of capital controls (while
this possibility was downplayed recently by central
bank chief Uribe, the finance minister could decide to
move forward on this front) and a rate cut amid a
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Marcelo Carvalho 55 11 3841 3418 Florencia Vazquez 54 11 4875 4363
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context of benign inflation dynamics (the least likely
option, in our view).
ARGENTINA
„ Heavy day in terms of economic data releases:
September IP and merchandise trade figures, and
the August real GDP proxy will all be unveiled this
afternoon. On the external front, the merchandise
trade surplus is expected to have declined slightly in
September to USD 0.8bn. If the forecast materializes,
the trade result would have inched down on a 12-
month basis to USD 13.8bn last month. The y/y pace
of advance of both exports and imports is expected to
have moderated last month.
On the economic activity front, industrial production
is expected to have continued to expand on a monthly
basis last month and to post a 9.7% y/y advance.
Separately, the August economic activity report should
also show a strong 9.1% y/y gain according to
statements by President Kirchner earlier during the
week. Such a performance would stand slightly ahead
of both our forecast and the median estimate from
Bloomberg’s survey (8.6% and 8.8% y/y, respectively).
A m/m (sa) bounce is expected — following two
straight monthly declines — based on strong
performances by the industrial and construction
sectors (both up 2% m/m, sa) in August.
„ The relevant committees paved the way for the
INDEC reform to be discussed in the lower
chamber. This opposition-sponsored bill had already
been approved by the senate, but given that the lower
chamber committees have made some changes to the
original version, it should return to the senate after a
potential approval in the lower chamber.
PERU
„ Potential measures to cap the currency’s strength
were also the focus in Peru yesterday. Economy
minister Casas stated that the Finance Ministry is
considering administrative measures with the aim of
moderating capital inflows. Mr Casas also mentioned
that new taxes are not being considered but that a limit
on local banks’ currency movements is being
analyzed. He also highlighted the removal of the fiscal
stimulus proposed for next year as another element in
the official strategy to address the issue of FX
strength.
„ According to the latest poll for presidential
elections by Ipsos Apoyo, popular support
concentrated behind former mayor of Lima Luis
Castañeda and Keiko Fujimori. Castañeda has 24%
of total voting intentions (up visibly from 19% in
September), while 23% of voters would choose
Fujimori (slightly below the previous month’s 24%).
These percentages would decline and increase,
respectively, according to the pollster company if rural
voters were also considered (urban population was the
one polled in this survey). Alejandro Toledo would
come in third according to this survey, with 16% of the
votes.
Separately, the approval rating of President Garcia
improved to 35% this month from 31% in September.
The main reasons cited by those who disapproved of
the current administration were corruption and the
failure to fulfil previous promises.
Emerging Market Research
Italo Lombardi 1 212 841 6599
italo.lombardi@americas.bnpparibas.com
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