Latin American CDS: Fully Recovered, What are the Risks?

Editors Note: The Following RGE premium content, “Latin American CDS: Fully Recovered, What are the Risks?” is available to paid clients. Bertrand Delgado, Elisa Parisi-Capone and Alejandro Rivera, take a close look at Latin America’s 5 year CDS fundamental and counterparty risk dynamics.  They examine the extent to which counterparty risks explain the sharp movement […]

Latin America Economic Outlook

This week we are offering another preview of our global economic outlook for Q4, which will be released to RGE’s clients later this month. The following is a sample of our analysis on Latin America. The full version of the outlook goes into greater detail and includes RGE’s country-by-country projections for economic growth and several major indicators.

RGE maintains the position we took in our July outlook: Latin America will recover in 2010, but its expansion will likely be below potential. Given aggressive foreign and domestic policy responses in Latin American countries, the region is stabilizing in H2 2009 after having contracted severely in H1 2009. Although global and regional economic and financial conditions will likely improve in 2010, RGE expects the pace of external and local demand revival to be measured. Commodity prices will stay on hold in the middle ground between record highs and recent lows, mainly because of below-potential recovery in the U.S. and advanced economies, as well as in China. Though global liquidity will remain elevated in the upcoming quarters, favoring LatAm asset classes, market anxiety about the timing of exit strategies around the world represents a significant risk. Miscalculations in exit strategies and disappointing economic results pose the main risks to LatAm market dynamics in 2010.

RGE Monitor – Weekly Roundup

Check out all the great contributions that were published during the past week on RGE’s Nouriel Roubini’s Global EconoMonitor, RGE Analyst’s EconoMonitor, Finance & Markets Monitor, Peterson Institute for International Economics Monitor, Global Macro EconoMonitor, U.S. EconoMonitor, Emerging Markets Monitor, Asia EconoMonitor, Latin America EconoMonitor and Europe EconoMonitor.

This week on Nouriel Roubini’s Global EconoMonitor, Rachel Ziemba previews the G20’s crowded agenda, noting that there are significant divides that remain over the timing and scope of exit strategies from monetary accommodation, the path towards fiscal consolidation, the drive for financial regulatory reform, and climate change mitigation.  Please read RGE Monitor – The G20’s Crowded Agenda.

 

On the RGE Analyst’s EconoMonitor, Monika Brown notes that in an effort to create more transparency, the CFTC debuted its new break out of categories in the Commitment of Traders report. However, the new report still does not provide any conclusive evidence as to which group of traders might be causing price volatility. Alternative theories exist to explain the volatility and these theories may gain credibility if further analysis of the Commitment of Traders report does not yield any solid evidence. See Seeking Answers on Oil Market Volatility.

Turkey’s Policy Rate at All-Time Low: Is the Central Bank Pushing on a String? Over the past year, Turkey’s central bank has slashed rates by an extraordinary 950 basis points to 7.25% in September. Further easing is expected. Mary Stokes questions the effectiveness of additional rate cuts, particularly without an IMF program in place, given the deterioration in the country’s public finances.

RGE Monitor – The G20’s Crowded Agenda

This week we review the critical issues G20 leaders will focus on when they meet this week in Pittsburgh. The coordinated and unilateral policy actions taken by these countries and others—including aggressive fiscal and monetary stimulus, increased funding to the IMF, and backstopping financial systems globally—helped stop the economic freefall. The economic outlook has improved since their last meeting in April, but the challenge of navigating towards sustainable growth is equally difficult, and the coming period brings the risk of policy missteps as countries begin to plan their exit strategies. On the eve of the G20 meeting, there remain significant divides over the timing and scope of exit strategies from monetary accommodation, the path towards fiscal consolidation, and the drive for financial regulatory reform.

As RGE highlighted recently, financial regulation will continue to be a key part of the leaders’ debate. New capital requirements seem more likely, in the vein of suggestions raised by the Bank of International Settlements (BIS) and the Financial Stability Board. The recent meeting of the G20 finance ministers and central bank governors supported such moves. The meeting broke, however, without an agreement on compensation reforms to avoid a procyclical focus on short-term returns, a policy championed by the European Union. The issue of banks’ balance sheets still being impaired also needs to be addressed.

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