- Chile: Negative one-off effect in services in Q4-2022; we reaffirm our forecast for GDP growth and current account deficit for 2023
The quieter news backdrop around the stability of the global financial system is resonating positively in markets with decent gains in US equity futures (+0.6%), higher global yields across most majors, but in contrast to a mixed USD and mixed commodities (oil +1%, iron ore -1.7%, copper +1.5%). The main development overnight was a report that the FDIC is looking at how they may expand coverage to all bank deposits, not just those at USD250k and under. This looks still far from happening, but they are looking at options in case a situation arises where they may need to guarantee this support.
The MXN is taking this market optimism in its stride, with its 0.7% gain on the day to 18.70, which is building some distance from the 19 pesos level, has it outperforming most major currencies. Note that Colombian and Mexican markets reopen today after yesterday’s holidays closure.
A normalization of Fed expectations is bound to support the peso, with Banxico looking like it will again hike next week. Dep Gov Heath said yesterday that the bank must persevere with its stance, “precisely to continue trying to placate inflation.” Markets are roughly pricing in an 80% chance that the Fed hikes 25bps tomorrow, and we think Banxico will likely follow with a same-sized increase.
Later today, we get the results for the latest Citibanamex survey that we’re watching for possible changes to economists’ expectations for rates; this is the only noteworthy release in the region today. Our view for Mexico’s central bank is unchanged, seeing a terminal rate of 11.75%, holding there until Q1-2024. Of course, this remains subject to changes were the current situation to considerably worsen.
From a global markets perspective, developments around the stability of US regional banks may continue to result in sharp intraday action in Latam, while secondary US data (Philly Fed and Existing Home Sales) are unlikely to influence markets significantly. A normalization of US yields after the sharp swing lower (partly on short-covering) exaggerated the shift in Fed expectations—in our opinion—and this could see the USD better supported.
—Juan Manuel Herrera
CHILE: NEGATIVE ONE-OFF EFFECT IN SERVICES IN Q4-22; WE REAFFIRM OUR FORECAST FOR GDP GROWTH AND CURRENT ACCOUNT DEFICIT FOR 2023
On Monday, March 20, the central bank (BCCh) released GDP data for Q4-2022, which showed a 2.3% y/y contraction. With this, GDP expanded 2.4% in 2022, below both market expectations and the preliminary estimates published by the BCCh (2.7%).
By economic sector, the negative surprise came from services due to a one-off effect in transportation services, which would not have a negative impact on 2023 GDP. In fact, the BCCh revised upwards the monthly GDP growth for January 2023, mainly due to a lower base of comparison in transportation services. All in all, the downward adjustment of GDP for 2022 by the BCCh would not impact our projection of a 0.8% contraction for this year.
Similarly, the current account balance accumulated a deficit of 9.0% of GDP in Q4-2022, explained by the same one-off effect in the services balance, surprising downwards our forecasts. The good news came from the income balance, which registered a USD5bn deficit in Q4-2022 thanks to the inflow of foreign direct investments. Despite a higher-than-expected current account deficit, we reaffirm that the adjustment is underway.
—Aníbal Alarcón
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.