The Week Ahead: Assessing The State Of Manufacturing Activity

This week saw the release of retail sales growth and economic activity data for Mexico, as well as a decision by its central bank to cut its overnight rate by 25 basis points (bps) to 3.50% on October 25. Although both retail sales and economic activity disappointed for the month of August, coming in below survey estimates - in the case of retail sales the actual figure was -2.2% y-o-y versus estimates for 1.2% growth - we believe that the latest rate cut marks the end of Mexico's monetary easing cycle. We see manufacturing activity recovering towards the end of 2013, which will gradually see the central bank's focus shift towards price stability.

Indeed, in the week ahead we are seeing the release of several manufacturing activity indices across the region, and in the case of Mexico will be watching the release of the IMEF Manufacturing Index survey for October, which could start to show some initial signs of expansion, following below-50 prints in preceding months (a value below 50 indicates a contraction). Brazil is also due to release manufacturing data, in the form of its manufacturing PMI for October, as well as industrial production data for September. Manufacturing index data will also come out for Chile, which has seen a 2.0% y-o-y contraction in August. Survey estimates currently place the September print at 2.1%.

Previous Week's Highlights…

The Week Ahead: Assessing The State Of Manufacturing Activity

This week saw the release of retail sales growth and economic activity data for Mexico, as well as a decision by its central bank to cut its overnight rate by 25 basis points (bps) to 3.50% on October 25. Although both retail sales and economic activity disappointed for the month of August, coming in below survey estimates - in the case of retail sales the actual figure was -2.2% y-o-y versus estimates for 1.2% growth - we believe that the latest rate cut marks the end of Mexico's monetary easing cycle. We see manufacturing activity recovering towards the end of 2013, which will gradually see the central bank's focus shift towards price stability.

Indeed, in the week ahead we are seeing the release of several manufacturing activity indices across the region, and in the case of Mexico will be watching the release of the IMEF Manufacturing Index survey for October, which could start to show some initial signs of expansion, following below-50 prints in preceding months (a value below 50 indicates a contraction). Brazil is also due to release manufacturing data, in the form of its manufacturing PMI for October, as well as industrial production data for September. Manufacturing index data will also come out for Chile, which has seen a 2.0% y-o-y contraction in August. Survey estimates currently place the September print at 2.1%.

Previous Week's Highlights…

Argentina released its goods trade data for September on Monday, which showed continued narrowing in the goods trade surplus to US$849mn from US$888mn a year prior. Imports are surging due to base effects from import restrictions in 2012, up 10.7% year-on-year (y-o-y) in the year-to-date through September, and export growth has slowed in recent months.

Argentina's consumer confidence index, compiled by the Universidad Torcuato di Tella, showed an unexpected jump from 48.65 in September to 51.85 in October, the highest level since February 2012. The increase in consumer confidence poses upside risk to our forecast for just 3.0% real private consumption growth this year.

Brazil's unemployment rate for September was released on October 24. The jobless rate came in at 5.4%, slightly above survey estimates, which were anticipating that it would hold steady at 5.3%. Given our expectations for a sustained period of economic weakness, we expect a less significant drop in the jobless rate by year-end than was the case in 2012, forecasting end-2013 unemployment at 5.2%, as compared to 4.6% as of end-2012.

Colombia's Banco de la República (BanRep) hold its rate at 3.25%, in line with broad expectations. We believe BanRep's easing cycle is over, which saw 200 bps of rate cuts since July 2012, and expect a tightening cycle to begin in 2014, when we forecast 75bps of rate hikes as consumer price inflation heads higher.

The Banco de México (Banxico) reduced its policy rate by 25 basis points (bps) to 3.50% on October 25, which we believe marks the end of its easing cycle with a total of 100bps of cuts this year. We forecast Banxico to commence a tightening cycle in H214, as we approach the normalisation of US monetary policy and consumer price inflation expectations head higher.

Mexican economic activity and retail sales for the month of August disappointed to the downside, reflecting the sluggish recovery the economy has seen in recent months. The economic activity index (IGAE) expanded by 0.8% y-o-y in that period, slower than the 1.0% growth seen in July. Retail sales contracted by 2.2% y-o-y in August, after expanding by 1.3% in July. We expect economic activity to gradually pick up in the latter months of 2013 and accelerate in 2014 as exports and private consumption pick up.

Venezuelan unemployment rate edged downward, to 7.8% in September, from 8.0% in August. Although there remain serious challenges which plague Venezuela's economy, August's figure was on the high end of the 7.5%-8.0% range seen in the labour market over recent months. As a result the slight improvement was in line with our expectations.

What We Are Watching In The Week Ahead...

Argentina

(October 31) Construction Activity: We will be closely watching Argentina's construction activity index on Thursday, which jumped by 10.7% y-o-y in August. A strong September reading would show significant construction industry acceleration in the third quarter, posing upside risk to our forecast for just 4.5% real fixed investment growth this year.

Brazil

(October 29) Personal Loan Default Rate: Brazil's central bank will release data on personal loan defaults for September on Tuesday. While the personal loan default rate has ticked down in recent months, in line with modest declines in household debt levels, we will be watching closely for any signs that households are increasingly stretched to make their payments in light of rising interest rates.

(November 1) Industrial Production: On Friday, Brazil's national statistical agency will release the September industrial production index. Survey estimates are anticipating a 3.0% y-o-y expansion, following a 1.2% y-o-y contraction in August. We believe that a modest recovery in the September reading is likely due in part to base effects following a 3.2% y-o-y contraction during the same month last year. However, with the September manufacturing PMI reading remaining below 50, indicating contraction, we believe any uptick is likely to be muted.

(November 1) PMI Manufacturing: The October purchasing managers' index (PMI) for Brazil's manufacturing sector will come out on Friday. With PMI having ticked up to 49.9 in September, this month's reading will give an indication of whether we can expect modest improvements in industrial sector data, and potentially economic activity, in October.

Chile

(October 30) Unemployment Rate: Chile will announce its September unemployment rate on Wednesday. Unemployment in Chile has remained near historical lows this year, coming in at 5.7% in August, and while we forecast a rise in unemployment to 6.4% by end-2013 and 6.5% by end-2014, from 6.0% at end-2012, we believe that the labour market will remain relatively well-insulated from a slowdown in mining sector output, given that less than 3.0% of the overall labour force is directly concentrated in mining.

Colombia

(October 31) Unemployment: On Thursday, Colombia's national statistic agency (DANE) will release labour market data for the month of September. The unemployment rate came in at 9.3% in August, and we forecast it will gradually decline to 8.6% by end-2013, bolstered by strong job generation in export-oriented and consumer-based sectors.

Ecuador

(October 31) GDP: Ecuador is scheduled to release Q213 GDP data on Thursday. Economic activity in Ecuador slowed in Q113, in line with our forecast that real GDP growth will fall to 3.0% in 2013 and 2.5% in 2014, from 5.2% in 2012. Indeed, headline growth in the first quarter of this year came in at 3.5% year-on-year (y-o-y), the lowest figure since Q210, primarily due to weaker oil exports.

El Salvador

(October 30) Economic Activity Index: El Salvador will release August economic activity index data on Wednesday. We expect that economic activity remained tepid, in line with July's 1.3% y-o-y figure. Indeed, after El Salvador posted growth of 1.4% year-on-year (y-o-y) in Q113, we maintain our forecast for real GDP growth of only 1.8% in 2013.

Mexico

(November 1) IMEF Manufacturing Index: The October Mexican Manufacturing Index (IMEF) will be released on Friday. Following below-50 levels in recent months (a value below 50 indicates a contraction), we expect the manufacturing index to begin to show signs of an expansion in the sector in, as implied by the gradual recovery in manufactured good exports seen in recent months.

Peru

(November 1) Inflation: We expect that following a slight moderation in September which saw price growth fall within the central bank's target of 1.0-3.0% year-on-year, coming in at 2.8% y-o-y for the month, inflation will again begin to pick back up due to import costs and statistical base effects. We believe that the October's print will come in at 3.0%.

Trinidad & Tobago

(October 31) Consumer Price Inflation: The Central Bank of Trinidad & Tobago (CBTT) will release September inflation data next week. We expect inflation to show a slight uptick from the 5.1% y-o-y figure recorded in August, given indications of a moderate recovery in domestic demand. A sharper rise in inflation would pose risks to our view that the CBTT will continue to hold the benchmark policy rate at 2.75% in the coming months.

Latin America - Economic Data Releases (October 28 - November 1)
Date Country Indicator Period Survey Prior
28-Oct-13 Argentina Industrial Production YoY Sep 2.50% -0.40%
28-Oct-13 Argentina Industrial Production MoM Sep -- -1.50%
31-Oct-13 Argentina Construction Activity YoY Sep -- 10.70%
31-Oct-13 Argentina Construction Activity MoM Sep -- 0%
1-Nov-13 Argentina Government Tax Revenue, US$mn Oct 73,800 71,800
28-Oct-13 Bahamas CPI YoY Sep -- 0%
28-Oct-13 Barbados CPI YoY Sep -- 1.30%
28-Oct-13 Belize CPI YoY Sep -- --
28-Oct-13 Brazil FGV Construction Costs MoM Oct 0.36% 0.43%
28-Oct-13 Brazil Central Bank Weekly Economists Survey
28-Oct-13 Brazil Serasa Business Credit Delinquencies
29-Oct-13 Brazil Outstanding Loans MoM Sep -- 1.30%
29-Oct-13 Brazil Total Outstanding Loans Sep -- 2,578,000
29-Oct-13 Brazil Personal Loan Default Rate Sep -- 7.10%
29-Oct-13 Brazil Private Banks Lending, BRLmn Sep -- 1,271,000
29-Oct-13 Brazil Central Govt Budget Balance, BRLmn Sep -1,000 100
30-Oct-13 Brazil FGV Inflation IGPM MoM Oct 0.91% 1.50%
30-Oct-13 Brazil FGV Inflation IGPM YoY Oct 5.32% 4.40%
30-Oct-13 Brazil PPI Manufacturing MoM Sep -- 1.48%
30-Oct-13 Brazil PPI Manufacturing YoY Sep -- 5.97%
30-Oct-13 Brazil Central Bank Posts Currency Flows' Data for Prev. Week
31-Oct-13 Brazil Net Debt % GDP Sep 34.50% 33.80%
31-Oct-13 Brazil Nominal Budget Balance, BRLmn Sep -20,000 -22,300
31-Oct-13 Brazil Primary Budget Balance, BRLmn Sep 400 -400
1-Nov-13 Brazil FGV CPI IPC-S Oct-31 0.50% 0.49%
1-Nov-13 Brazil Industrial Production MoM Sep 1.30% 0%
1-Nov-13 Brazil Industrial Production YoY Sep 3% -1.20%
1-Nov-13 Brazil PMI Manufacturing Oct -- 49.9
1-Nov-13 Brazil Trade Balance Monthly, US$mn Oct 1,350 2,147
1-Nov-13 Brazil Exports Total, US$mn Oct 23,450 20,996
1-Nov-13 Brazil Imports Total, US$mn Oct 22,107 18,849
1-Nov-13 Brazil Vehicle Sales Fenabrave Oct -- 309,879
29-Oct-13 Chile Manufacturing Index YoY Sep 2.10% -2%
29-Oct-13 Chile Retail Sales YoY Sep 11% 12%
29-Oct-13 Chile Copper Production Total Sep -- 492,883
30-Oct-13 Chile Unemployment Rate Sep 5.80% 5.70%
21-Oct-13 Colombia Vehicle Sales Sep -- 23,636
30-Oct-13 Colombia Budget Balance, COPmn Sep -- -3,678,000
31-Oct-13 Colombia National Unemployment Rate Sep -- 9.30%
31-Oct-13 Colombia Urban Unemployment Rate Sep 10% 10.30%
1-Nov-13 Colombia PPI MoM Oct -- -0.16%
1-Nov-13 Colombia PPI YoY Oct -- -1.33%
31-Oct-13 Costa Rica Benchmark Interest Rate Oct -- 4
31-Oct-13 Dominican Republic Overnight Rate Oct-31 -- 6.25%
1-Nov-13 Dominican Republic Gross Reserves, US$mn Oct -- 3,644
23-Oct-13 Ecuador Current Account Balance 2Q -- -41.3
31-Oct-13 Ecuador GDP YoY 2Q -- 3.50%
31-Oct-13 Ecuador GDP QoQ 2Q -- 0.20%
30-Oct-13 El Salvador Economic Activity YoY Aug -- 1.30%
28-Oct-13 Guatemala Trade Balance, US$mn Sep -- -574
30-Oct-13 Guatemala Leading Interest Rate Oct-30 -- 5.25%
31-Oct-13 Guatemala M2 Money Supply YoY Sep -- 10.10%
31-Oct-13 Jamaica Unemployment Rate 2Q -- 16.30%
29-Oct-13 Mexico International Reserves Weekly, US$mn Oct-25 -- 173,236
31-Oct-13 Mexico Budget Balance YTD, MXNmn Sep -115,810 -113,900
31-Oct-13 Mexico Net Outstanding Loans, MXNmn Sep -- 2.42E+06
1-Nov-13 Mexico Central Bank Economist Survey
1-Nov-13 Mexico Remittances Total, US$mn Sep 1,680 1,911
1-Nov-13 Mexico IMEF Manufacturing Index SA Oct -- 49.9
1-Nov-13 Mexico IMEF Non-Manufacturing Index SA Oct -- 50.1
1-Nov-13 Mexico IMEF Manufacturing Index NSA Oct -- 49.2
1-Nov-13 Mexico IMEF Non-Manufacturing Index NSA Oct -- 49
30-Oct-13 Panama Tourism Arrivals YoY Sep -- 6.70%
1-Nov-13 Paraguay CPI MoM Oct -- 0.30%
1-Nov-13 Paraguay CPI YoY Oct -- 3.20%
1-Nov-13 Peru CPI MoM Oct 0% 0.11%
1-Nov-13 Peru CPI YoY Oct 3% 2.83%
1-Nov-13 Peru Wholesale Price Index MoM Oct -- 0.52%
31-Oct-13 Trinidad & Tobago CPI YoY Sep -- 5.10%
31-Oct-13 Trinidad & Tobago CPI MoM Sep -- --
30-Oct-13 Uruguay PPI MoM Oct -- 2.01%
30-Oct-13 Uruguay PPI YoY Oct -- 3.75%
31-Oct-13 Uruguay Budget Balance, UYUmn Sep -- -5,861
1-Nov-13 Uruguay Trade Balance
1-Nov-13 Venezuela Venezuela Crude Oil Basket Nov-01 -- 95.76
Source: Bloomberg
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