US Tsy Sect Lew Visits Brazil Mon, Mexico Tues

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Monday, March 17, 2014 - 03:10

LatamWatch: US Tsy Sect Lew Visits Brazil Mon, Mexico Tues

By Charles Newbery, James Young and Daniel Horch
--Brazil Cen Bank Pres to Testify in Senate Tues
--Mexico Politics Heats Up Amid Next Round of Energy Debate
--Argentina Seeks to Build FX Reserves as Soy Exports Rise

BUENOS AIRES, MEXICO CITY AND SAO PAULO (MNI) - U.S. Treasury Secretary Jack Lew will be in Brazil and Mexico Monday and Tuesday for an unusually rapid visit to the region to meet officials and business leaders to stress, a senior Treasury official told reporters, the close historic ties with the nations and urge them to pursue strong, sustainable growth.
What else they might be discussing and why the quick format was unclear since that Treasury official who spoke to reporters would not elaborate on these details, beyond the schedule and the broad policy goals - "to foster the strong and mutually beneficial economic relationship," etc...
Oddly enough, while Lew is in Sao Paulo meeting with Central Bank President Alexandre Tombini and Finance Minister Guido Mantega as well as business leaders, Bank of Mexico Gov. Agustin Carstens will be giving a speech in Washington, and undoubtedly will have to rush back to Mexico City for meetings with Lew Tuesday.
Lew also will meet with Mexican President Enrique Pena Nieto, Finance Minister Luis Videgaray Tuesday.
Meanwhile, Tombini will make his regular quarterly appearance before the Senate Economic Affairs Committee Tuesday.
According to the Senate website, senators intend to ask Tombini not only about monetary policy, but also about the Federal Reserve labeling Brazil the second most vulnerable emerging market economy.
Markets are increasing bets that tightening will continue at the 25 basis poin pace established at the February 26 Copom meeting after six consecutive 50 bps hikes.
February inflation was higher than expected, and poor weather in Brazil and the U.S. may cause food prices to pressure inflation. Drought is also forcing the government to use more expensive gas-powered generators to replace hydroelectric power, increasing the cost of subsidies.
Finance Minister Guido Mantega announced last week that the government would meet the extra cost in part by using an industry association to borrow money for the utilities, which would be repaid by raising prices next year, after presidential and congressional elections are past.
This maneuver will help the government meet its fiscal target this year, but since it also guarantees additional pressure on inflation in 2015, it may make it harder for the Copom to end its tightening cycle.
The central bank began raising rates in April 2013, after cutting them below what most analysts deemed prudent. The Selic overnight rate has now risen to 10.75% from 7.25%, but inflation expectations have continued to rise and are now 6.12% for the next 12 months.
Several analysts say the risk of electricity rationing, which would slow the economy and tax receipts, is rising as the drought continues.
The IBGE state statistics agency releases the service sector survey and industrial employment and wages for January Tuesday, and IPCA-15 midmonth inflation Friday.
-Mexico Politics Heats Up Amid Next Round of Energy Debate
Political maneuvering has begun in earnest over secondary legislation needed to implement the historic energy reform passed in December after last Thursday's decision by the conservative National Action Party to withdraw from the Senate Energy Committee's discussions of the laws.
The PAN leadership has insisted the government find who is responsible for a scandal embroiling state oil company Pemex that involves marine engineering and consulting firm Oceanografia and an alleged $400 million loan fraud.
PAN members are accusing the ruling Institutional Revolutionary Party (PRI) and the liberal Democratic Revolutionary Party (PRD) of using the scandal to attack the PAN and leverage the party into agreeing to weakening the reach of the energy reform, a point PRI Senate leader Emilio Gamboa denies.
Gamboa has said he expects the PAN to return to the table this week and indicated the work on the secondary laws is "90% complete."
The Bank of Mexico's monetary policy board meets Friday and are widely expected to keep the benchmark interest rate at 3.50%, but what they say about growth an inflation will be of most interest.
In a March 5 poll, Banamex found 25 banks gave a median forecast for the next move to be a 25 bps hike coming March 2015. Analysts say the rise in inflation early this year, largely related to recently enacted taxes, already is beginning to moderate, and while growth appears to be weakening, conditions have not deteriorated to the point further lowering is needed.
Analysts will be scrutinizing the central bank comments on the outlook given the surprising weakness in the economy thus far in 2014. Most see the tone on inflation to be neutral or slightly positive
State statistics agency INEGI releases its January retail sales report Friday, and analysts see the possibility of a weak or negative growth in the indicator. A raft of new taxes on items like junk food, soda and pet food, amid a four-year low in consumer confidence, likely dampened spending. But the not-seasonally adjusted index will be helped by additional work days this year.
INEGI reports on global demand for the fourth quarter 2013 Thursday, which should reflect the anemic 0.7% growth seen in the period, as exports stalled and consumption growth was weak on sluggish job growth, higher prices and little improvement in access to credit.
The government could release the second quarter debt auction calendar as early as this week.
Mexico's banks and markets will be closed Monday in observance of Benito Juarez's birthday.
-Argentina Seeks to Build FX Reserves as Soy Exports Rise
Argentina will continue trying to rebuild foreign reserves from a seven-year low even as rising inflation hits consumers. The central bank bought dollars and let the peso strengthen to 7.889 to the U.S. dollar last week, up from a low of 8 after the currency slumped 23% in January.
Export inflows have increased to a daily average of around $80 million as the farm sector sells crops and derivatives. The second quarter is the busiest month for soy shipments, the country's largest export.
Estudio Broda, an economic consultancy, expects soy exports will bring at least $8 billion into the country between April and June. Some estimates put the inflow higher at $10 billion.
However, much of the inflow will go to pay debt service and imports, especially energy. The country has been ramping up energy imports to meet demand as domestic oil and natural gas production, which only meets about 85% of national energy needs, continues a decade-long slide.
Planning Minister Julio de Vido, who oversees energy affairs, last week said Argentina is running a $9 billion annual energy deficit after traditionally running a surplus. But he said a recent spate of conventional crude finds and a pickup in drilling for shale oil and gas resources will help return the trade account to surplus by 2016 or 2017.
Analysts expect that while the soy dollars may help sustain or build foreign reserves, much could be spent during the second half on imports and debt payments. The country must pay about $5 billion in debt at the end of 2014.
Some help could come from State energy company YPF, the biggest oil and gas producer in the country, which plans to sell up to $1 billion in bonds on global markets, helping to recover part of its $800 million cash payment last week to buy the Argentine operations of U.S. oil company Apache Corp.
According to Buenos Aires financial newspaper Ambito Financiero, YPF could announce the bond sale as soon as this week. This would be YPF's second international bond sale following a $500 million issue in December, on which it is paying 8.875% annual interest.
YPF is investing $37.2 billion between 2012 and 2017 to turn around a 6% annual slide in production of the past decade, an effort that is starting to pay off. Its oil output rose 2.2% and gas by 1.5% in 2013 compared with 2012.
Even so, rising energy imports are making it harder for the central bank to contain the exchange rate and rebuild reserves, which have dropped to a seven-year low of $27.5 billion from nearly $53 billion in 2011. The peso is expected to drop to 8.89 per dollar at the end of August, according to trading on futures markets.
The government and YPF are seeking to rebuild investor confidence in the company, including by reaching a preliminary deal to pay Spain's Repsol $5 billion for its expropriated 51% stake in YPF. A next step will be to negotiate a settlement of about $10 billion in debt with the Paris Club of creditor nations.
The Senate this week will continue to review the Repsol-YPF deal, which needs full congressional approval - and the nod from Repsol shareholders - before it can take effect.
The government will report February inflation Monday. Private economists estimate that consumer prices rose 4.3% in February compared with January, the highest month-on-month increase in 23 years. That puts annual inflation at 35.88%, according to an average of private estimates published by opposition congressional deputies last week.
* Editor: Heather Scott; Follow us on Twitter: @MNILatamWatch
--MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com
https://mninews.marketnews.com/index.php/latamwatch-us-tsy-sect-lew-visits-brazil-mon-mexico-tues?q=content/latamwatch-us-tsy-sect-lew-visits-brazil-mon-mexico-tues

Monday, March 17, 2014 - 03:10

LatamWatch: US Tsy Sect Lew Visits Brazil Mon, Mexico Tues

By Charles Newbery, James Young and Daniel Horch
--Brazil Cen Bank Pres to Testify in Senate Tues
--Mexico Politics Heats Up Amid Next Round of Energy Debate
--Argentina Seeks to Build FX Reserves as Soy Exports Rise

BUENOS AIRES, MEXICO CITY AND SAO PAULO (MNI) - U.S. Treasury Secretary Jack Lew will be in Brazil and Mexico Monday and Tuesday for an unusually rapid visit to the region to meet officials and business leaders to stress, a senior Treasury official told reporters, the close historic ties with the nations and urge them to pursue strong, sustainable growth.
What else they might be discussing and why the quick format was unclear since that Treasury official who spoke to reporters would not elaborate on these details, beyond the schedule and the broad policy goals - "to foster the strong and mutually beneficial economic relationship," etc...
Oddly enough, while Lew is in Sao Paulo meeting with Central Bank President Alexandre Tombini and Finance Minister Guido Mantega as well as business leaders, Bank of Mexico Gov. Agustin Carstens will be giving a speech in Washington, and undoubtedly will have to rush back to Mexico City for meetings with Lew Tuesday.
Lew also will meet with Mexican President Enrique Pena Nieto, Finance Minister Luis Videgaray Tuesday.
Meanwhile, Tombini will make his regular quarterly appearance before the Senate Economic Affairs Committee Tuesday.
According to the Senate website, senators intend to ask Tombini not only about monetary policy, but also about the Federal Reserve labeling Brazil the second most vulnerable emerging market economy.
Markets are increasing bets that tightening will continue at the 25 basis poin pace established at the February 26 Copom meeting after six consecutive 50 bps hikes.
February inflation was higher than expected, and poor weather in Brazil and the U.S. may cause food prices to pressure inflation. Drought is also forcing the government to use more expensive gas-powered generators to replace hydroelectric power, increasing the cost of subsidies.
Finance Minister Guido Mantega announced last week that the government would meet the extra cost in part by using an industry association to borrow money for the utilities, which would be repaid by raising prices next year, after presidential and congressional elections are past.
This maneuver will help the government meet its fiscal target this year, but since it also guarantees additional pressure on inflation in 2015, it may make it harder for the Copom to end its tightening cycle.
The central bank began raising rates in April 2013, after cutting them below what most analysts deemed prudent. The Selic overnight rate has now risen to 10.75% from 7.25%, but inflation expectations have continued to rise and are now 6.12% for the next 12 months.
Several analysts say the risk of electricity rationing, which would slow the economy and tax receipts, is rising as the drought continues.
The IBGE state statistics agency releases the service sector survey and industrial employment and wages for January Tuesday, and IPCA-15 midmonth inflation Friday.
-Mexico Politics Heats Up Amid Next Round of Energy Debate
Political maneuvering has begun in earnest over secondary legislation needed to implement the historic energy reform passed in December after last Thursday's decision by the conservative National Action Party to withdraw from the Senate Energy Committee's discussions of the laws.
The PAN leadership has insisted the government find who is responsible for a scandal embroiling state oil company Pemex that involves marine engineering and consulting firm Oceanografia and an alleged $400 million loan fraud.
PAN members are accusing the ruling Institutional Revolutionary Party (PRI) and the liberal Democratic Revolutionary Party (PRD) of using the scandal to attack the PAN and leverage the party into agreeing to weakening the reach of the energy reform, a point PRI Senate leader Emilio Gamboa denies.
Gamboa has said he expects the PAN to return to the table this week and indicated the work on the secondary laws is "90% complete."
The Bank of Mexico's monetary policy board meets Friday and are widely expected to keep the benchmark interest rate at 3.50%, but what they say about growth an inflation will be of most interest.
In a March 5 poll, Banamex found 25 banks gave a median forecast for the next move to be a 25 bps hike coming March 2015. Analysts say the rise in inflation early this year, largely related to recently enacted taxes, already is beginning to moderate, and while growth appears to be weakening, conditions have not deteriorated to the point further lowering is needed.
Analysts will be scrutinizing the central bank comments on the outlook given the surprising weakness in the economy thus far in 2014. Most see the tone on inflation to be neutral or slightly positive
State statistics agency INEGI releases its January retail sales report Friday, and analysts see the possibility of a weak or negative growth in the indicator. A raft of new taxes on items like junk food, soda and pet food, amid a four-year low in consumer confidence, likely dampened spending. But the not-seasonally adjusted index will be helped by additional work days this year.
INEGI reports on global demand for the fourth quarter 2013 Thursday, which should reflect the anemic 0.7% growth seen in the period, as exports stalled and consumption growth was weak on sluggish job growth, higher prices and little improvement in access to credit.
The government could release the second quarter debt auction calendar as early as this week.
Mexico's banks and markets will be closed Monday in observance of Benito Juarez's birthday.
-Argentina Seeks to Build FX Reserves as Soy Exports Rise
Argentina will continue trying to rebuild foreign reserves from a seven-year low even as rising inflation hits consumers. The central bank bought dollars and let the peso strengthen to 7.889 to the U.S. dollar last week, up from a low of 8 after the currency slumped 23% in January.
Export inflows have increased to a daily average of around $80 million as the farm sector sells crops and derivatives. The second quarter is the busiest month for soy shipments, the country's largest export.
Estudio Broda, an economic consultancy, expects soy exports will bring at least $8 billion into the country between April and June. Some estimates put the inflow higher at $10 billion.
However, much of the inflow will go to pay debt service and imports, especially energy. The country has been ramping up energy imports to meet demand as domestic oil and natural gas production, which only meets about 85% of national energy needs, continues a decade-long slide.
Planning Minister Julio de Vido, who oversees energy affairs, last week said Argentina is running a $9 billion annual energy deficit after traditionally running a surplus. But he said a recent spate of conventional crude finds and a pickup in drilling for shale oil and gas resources will help return the trade account to surplus by 2016 or 2017.
Analysts expect that while the soy dollars may help sustain or build foreign reserves, much could be spent during the second half on imports and debt payments. The country must pay about $5 billion in debt at the end of 2014.
Some help could come from State energy company YPF, the biggest oil and gas producer in the country, which plans to sell up to $1 billion in bonds on global markets, helping to recover part of its $800 million cash payment last week to buy the Argentine operations of U.S. oil company Apache Corp.
According to Buenos Aires financial newspaper Ambito Financiero, YPF could announce the bond sale as soon as this week. This would be YPF's second international bond sale following a $500 million issue in December, on which it is paying 8.875% annual interest.
YPF is investing $37.2 billion between 2012 and 2017 to turn around a 6% annual slide in production of the past decade, an effort that is starting to pay off. Its oil output rose 2.2% and gas by 1.5% in 2013 compared with 2012.
Even so, rising energy imports are making it harder for the central bank to contain the exchange rate and rebuild reserves, which have dropped to a seven-year low of $27.5 billion from nearly $53 billion in 2011. The peso is expected to drop to 8.89 per dollar at the end of August, according to trading on futures markets.
The government and YPF are seeking to rebuild investor confidence in the company, including by reaching a preliminary deal to pay Spain's Repsol $5 billion for its expropriated 51% stake in YPF. A next step will be to negotiate a settlement of about $10 billion in debt with the Paris Club of creditor nations.
The Senate this week will continue to review the Repsol-YPF deal, which needs full congressional approval - and the nod from Repsol shareholders - before it can take effect.
The government will report February inflation Monday. Private economists estimate that consumer prices rose 4.3% in February compared with January, the highest month-on-month increase in 23 years. That puts annual inflation at 35.88%, according to an average of private estimates published by opposition congressional deputies last week.
* Editor: Heather Scott; Follow us on Twitter: @MNILatamWatch
--MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com
https://mninews.marketnews.com/index.php/latamwatch-us-tsy-sect-lew-visits-brazil-mon-mexico-tues?q=content/latamwatch-us-tsy-sect-lew-visits-brazil-mon-mexico-tues