Focus on Argentina – CB conflict negative for credit and the peso. The conflict between the government and the central bank escalated and is not likely to be resolved quickly, hurting bond prices and increasing implicit NDF rates. It also underscores policy risks and fiscal fragility, reinforcing our call to buy 12- month USD/ARS NDFs, funded by selling 6-month USD/ARS NDFs.
Brazil – Industrial production, better than it seems. Disappointing industrial production performance in November does not indicate deceleration ahead. Impressive expansion of investments suggests economic recovery should continue, reinforcing our call for the first Selic hike in March 2010.
Costa Rica – IMF gives valuable insights about the transition. The IMF and local authorities discussed implementation of a free-floating exchange rate and an inflation-targeting regime. We think that this transition should be done by getting rid of the band before the next administration's inauguration. (p. 4)
Venezuela – Real as well as nominal variables hit by crisis. In its year-end message, the CB announced a negative GDP growth print and a deficit in the balance of payments for 2009. It claims that activity recovery and closing the exchange rate gap are a priority in its agenda for 2010. (p. 5)
News in Brief. In Argentina, inflation was likely above 2% month over month in December 2009. In Brazil, net FX flows were US$2 billion during December. December's inflation stood at 0.08% MoM, 2.0% year over year in Colombia. In Venezuela, the unemployment rate should come in at 7.2% in December 2009.
Today’s Market Drivers
Chile.
We expect prices to have declined 0.2% MoM in December, with risks biased toward a more pronounced drop.
Mexico. We expect month-over-month
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