Week‐ahead highlights
Although the Fed’s Williams (generally seen as Dovish) said that QE could begin tapering in the summer, and end by year‐end, the DXY reaction was relatively muted. In our view, this muted reaction, plus the fact that strong inflows into EM local debt funds (US$800mn in the last week according to EPFR) continued despite QE‐tapering fears being a theme, signals that the LATAM FX sell‐off could be losing steam, but it may be premature to bet on it. The IMF published a paper discussing the sustainability of growth in Latin America, which we found very interesting. Among the findings is that factor accumulation remains the major driver (rather than TFP), TFP has improved recently but lags other high growth areas (Asia). Recent growth is seen as unsustainable barring improvements in TFP. The paper also estimates of potential GDP growth rates for regional economies.
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Scotiabank