OVERNIGHT NEWS
# Dollar firm before NFP, US 2y2y steady at 1.05% and 10y at 1.47%, SG forecast NFP +730k, China CSI -2.6%, USD/CNY bid at 6.48
# OPEC+ JMMC talks break down after UAE blocks preliminary deal between Saudi and Russia to increase output by 400kbpd from August; Brent crude steady above $75/b
# Fed’s Harker (non-voter) backs tapering $10bn/mth this year equally split between MBS and USTs – WSJ
# Weekly FX performance: USD up vs G10 and EM, commodity currencies underperform, TRY surprise winner in EM
# Nikkei +0.3%, EUR 10y IRS unch at 0.10%, Brent crude flat at $75.8/b, Gold +0.3% at $1,778/oz
9.3m US job openings match the number of unemployed
USDCOP drivers Thursday
GLOBAL
Stock futures rises with jobless claims and manufacturing data, while Treasury yields gained. The S&P500 rises 0.11% and Dow 0.18%. Government bond yields fall, with US 10yr yield on 1.457%. Oil prices rises ahead of the OPEC meeting, with WTI 3.1% higher.
In currencies, EURUSD is trading 0.15%, USDMXN 0.04%, USDBRL -0.17% and USDCOP 0.14%.
COLOMBIA
Colombia’s unemployment rate in the March-May 2021 moving quarter fell 2.8% compared to the same period in 2020 to 15%. According to figures from Dane, in this mobile quarter the global participation rate was 60.1%, which meant an increase of 4.7% compared to the same period in 2020 (55.4%). Finally, the occupancy rate was 51.1%, presenting an increase of 5.6% compared to the same moving quarter of 2020 (45.5%). For the national total, the unemployment rate for men in the moving quarter March – May 2021 was 12.0%, for women it was 19.1%. In the same 2020, these rates were 15.2% and 21.4%, respectively. The unemployment rate for men was 7.1% lower than that for women this year. In the moving quarter March – May 2020, this difference was 6.2%. However, the fall in the unemployment rate to 15.6% in May was marked by informality. Although the unemployment rate fell from 21.4% to 15.6% in the last 12 months, the figures of the latest report from the National Administrative Department of Statistics (Dane) show that, of the employed people, 48.3% work in informal jobs, which meant an increase of 1.5% compared to the figure reported in May 2020 (46.8%).
According to Dane, the government’s debt in 2020 is the highest in seven years. The entity reported that the net loan of Colombian households went from COP 11.3bn in 2019 to COP 45.5bn in 2020. In addition, during the year of the arrival of the covid-19 pandemic there was a deepening in the net indebtedness of Colombia, since from COP 43.3bn in 2019, the figure reached COP 87.5bn in 2020. On the other hand, the elements that contributed the most to Colombia’s debt figure in 2020 were the social protection programs such as the extraordinary payments of families and young people in action and the solidarity income that meant COP 4.2bn in transfers to households.
In the last 24 hours, cases and deaths from Covid-19 increased: the Ministry of Health reported 27,908 infected and 610 deaths. Thus, throughout the national territory, there are 4,240,982 infected and 185,970 active, which means that 3,936,156 have been recovered and 106,544 have died. According to the Ministry of Health, the most cases were in Bogotá with 11,501; followed by Antioquia with 4,025; Valle del Cauca with 3,919; Santander with 2,042; Cundinamarca with 1,027 and Boyacá with 510.
The Ministry of Health reported that more than 17.94 million vaccines against covid-19 have been applied. The cumulative number of second doses applied is 6.57mn, while 87,968 single doses have already been used. On the other hand, the National Government registered in this latest report 6,654,730 immunized citizens, who have already completed the vaccination schedule. According to the report, Bogotá leads the application of vaccines, after having put 3,389,052 doses. They are followed by Antioquia, with 2,709,314; Valle del Cauca, with 1,688,929; Cundinamarca, with 1,066,504, and Santander, with 922,209.
- Fitch’s downgrade of Colombia’s credit rating below investment grade is in line with our call. Following the release of the Medium-Term Fiscal Framework (MTFF) report, we argued that Colombia’s debt will probably stabilise at a slower pace and at a higher level than official forecasts (see Colombia: The looming downgrade).
Gross public debt (% of GDP)
Sources: MTFF 2021, BNP Paribas
- We continue to expect a 25bp rate hike in September, earlier than analysts’ consensus of stable rates until Q4 2021. BanRep’s board has been emphasizing in H1 2021 that the space to maintain a monetary policy as expansive as the current stance could be limited if there isn’t an adequate fiscal adjustment. Fitch’s downgrade reinforces our expectation that the fiscal consolidation strategy, which will be slower than previously published in the failed tax reform, is subject to large execution risks. On top of this, we believe that S&P and Fitch decisions will be reflected in a higher neutral policy rate, likely at the next monetary policy report (to be published after the 30 July monetary policy meeting).
Official primary balance estimates (% of GDP)
Sources: Ministry of Finance, MTFF 2021, BNP Paribas
- Beyond the fiscal outlook, future rate decisions will mostly depend on inflation expectations, we think. While BanRep continues to highlight that expectations remain anchored, at the 28 June meeting it also showed for the first time this year some concern about the persistence of the shock. In our view, inflation will surprise to the upside in upcoming months and expectations will adjust upwards.
- Current account deficit back in the spotlight. While the rating downgrade was probably incorporated in market prices, we expect market’s attention to shift to the external sector. Fitch noted that Colombia is vulnerable to shocks and it increased its forecast for the current account deficit to 4.4% of GDP despite rising oil prices. Our estimates suggest that Colombia’s fundamentals are consistent with a current account deficit of 2% of GDP, 2% narrower than the levels for 2020 and 2021. We thus agree that Colombia is highly exposed to a change in risk sentiment. This is closely monitored by BanRep, which underscored that a tightening in external financial conditions could limit the monetary policy space.
Fitch’s decision may give the government some space to address the ongoing social conflict. Without the pressure of having to fulfill rating agencies expectations, authorities probably can have a more constructive debate in Congress and design a tax reform with more permanent measures. But political risks have not disappeared, we think, and risks for public expenditure are tilted to the upside considering elections in 2022.
Los mercados de EE.UU. parecen estar adelantándose a la proximidad del 4 de julio. La liquidez y la volatilidad han
disminuido en cierta medida y el USD ha subido sin un impulso de los tipos, y el ajuste del posicionamiento podría
continuar también para las divisas LatAm a medida que nos acercamos al largo fin de semana en EE.UU. También
podría haberse producido cierta fortaleza del USD en previsión de las nóminas no agrícolas de hoy, por lo que la
cifra final de empleo también podría dar lugar a una validación o a un cierto retroceso. De hecho, las divisas LatAm
comenzaron la segunda mitad del año mostrando una tendencia bajista y una importante pérdida de impulso. El
rendimiento agregado de las divisas LatAm en el 1S21 ha sido decepcionante, mostrando importantes limitaciones
y vulnerabilidades a pesar de un escenario muy favorable. Sin embargo, durante el 2T21, el MXN y en particular el
BRL, cuyos bancos centrales aumentaron los tipos de interés clave, se comportaron mejor que el COP y el PEN, en
cuyo caso no solo los bancos centrales han mantenido una postura más acomodaticia, sino que también se han
visto afectados por el ruido político. La reactivación del ruido político en Brasil también ha ayudado a recuperar
parte de la demanda de USD. Los factores técnicos también han entrado en juego, y una vez más los osciladores
han empujado al USDBRL hacia arriba y han ofrecido un soporte significativo. Después de varios intentos, el
soporte de USDBRL4,90 se ha reforzado, con todavía 5,20 como primera referencia superior (media móvil 50
días). Y en conjunto, se pierde el impulso.
La rebaja de Fitch confirma la pérdida del grado de inversión después de que S&P rebajara a Colombia a BB+ en
mayo. Si bien la noticia es negativa para los activos colombianos y subraya una postura fiscal más débil y una
prima de riesgo más alta a largo plazo para el país, y podría ejercer cierta presión adicional sobre BanRep para que
finalmente siga a otros países y suba los tipos de interés, creemos que la noticia está en su mayor parte
descontada. Los acontecimientos de los dos últimos meses, incluida la retirada de la reforma fiscal y la
confirmación de mayores planes de gasto, han permitido al mercado asimilar un escenario de pérdida del GI parte
de Colombia. También hemos argumentado que esta tendencia y la eventual calificación de basura de Colombia
se han estado gestando desde hace mucho tiempo y no debería sorprender sobremanera en este momento. En
ese sentido, también es algo que puede implicar algunas ventas forzadas de los fondos indexados pasivos, pero
deberían quedar limitadas por varias razones, incluyendo el hecho de que Colombia puede estar presente en los
índices de alto rendimiento, que los gestores activos pueden decidir mantener sus posiciones y el hecho de que las
diferentes agencias tienen diferentes metodologías y plazos para un eventual reajuste.
Asimismo, estas noticias implicarían principalmente algunas ventas forzadas de deuda USD, pero tienen un
impacto limitado para el COP, ya que los activos en moneda local no suelen formar parte de los índices GI.
Además, el mercado ya ha probado a qué se refiere la calificación de basura, con los desarrollos de los últimos dos
meses que vieron al USDCOP moverse inicialmente al alza desde 3600 hacia 3800, pero cerrando finalmente la
brecha. Por lo tanto, mantenemos nuestra recomendación de venta del USDCOP a estos niveles, aunque las
noticias pueden pesar sobre el COP a corto plazo en la apertura del viernes y, como se ha dicho anteriormente,
hay una clara pérdida de impulso en todo el mercado que puede necesitar un mayor retroceso del USD para que
nuestra operación funcione.
