• Fitch Solutions has raised its regional 2024 real GDP growth forecast for Latin America from 1.5% in late November 2023 to 1.6%. This increase has been almost exclusively driven by upward revisions in two markets, Brazil (from 1.4% to 1.6%) and Mexico (2.0% to 2.5%), that mask downward revisions in other markets (Argentina, Panama, Peru, etc.).
• Furthermore, these revisions track with generally disappointing economic data in the region in recent months. The Citi Latin America Economic Surprise Index fell to -12.8 in January, implying the data was worse than expected by consensus. This is also the lowest reading since January 2022 and down from 43.6 as recently as September 2023.
• Notably, the GDP-weighted aggregate shows economic activity lost steam in late 2023, suggesting the regional economy entered 2024 on a fairly weak footing.
• Notwithstanding, PMI data in Latin America is limited to Brazil, Colombia, and Mexico. However, this data shows a sharp improvement in the manufacturing sector in January, shooting above the 50.0 threshold that separates expansion from contraction.
• Furthermore, as expected, inflationary pressures moderated significantly in 2023, with the regional aggregate figure dropping below 5.0% y-o-y in June. However, in the months since the decline, prices have stagnated, with price growth remaining stubbornly above its long-term average. With prices remaining well above target across the board, Central Banks in the region will have to be judicious in implementing further rate cuts.
• Finally, the labour market remains a key point of strength in Argentina, Brazil, and Mexico. While the Q4 2023 print is likely to show a deterioration in Argentina, the latter two have benefited immensely from tight labour market conditions that have boosted private demand in recent quarters.

(Source: Fitch Solutions)

• The U.S. federal budget deficit fell sharply in January to $22Bn as receipts hit a record for that month, partly because tax refunds fell after the Internal Revenue Service (IRS) cleared a backlog of pandemic-delayed tax returns, the Treasury Department said on Monday.
• Last month's deficit was $17Bn, or 43%, less than the $39Bn deficit in January 2023. Outlays for the month grew 3% to $499Bn, while receipts jumped 7% to $477Bn.
• This January's comparison with a year ago was also significantly helped by the $36Bn bailout of a Teamsters Union pension fund in January 2023, as no similar large one-time outlays were recorded this year. For the first four months of the fiscal year, the deficit rose $72Bn, or 16%, to $532Bn as costs to service the national debt rose, as did outlays for Social Security, Medicare, and military programs.
• Individual tax refunds, which are deducted from receipts, were $15Bn lower in January than during January 2023. The IRS last year adopted new scanning technology to enable it to process paper returns more quickly. Individual withheld receipts in January, benefiting from strong employment trends, were up $20Bn, or 7%, from a year earlier.
• The Treasury's interest cost on the public debt grew $18Bn, or 35%, in January compared to a year earlier due to a higher weighted average interest rate now at 3.15%, as well as higher debt levels. For the fiscal year to date, debt interest costs were up $96Bn, or 37%, to $357Bn, outpacing outlays for Medicare.
• The Treasury also reported higher costs for military programs due to expenditures for military personnel operations and maintenance. For the first four months of fiscal 2024, these were up $32Bn, or 13%, to $283Bn.

(Source: Reuters)

• Eurozone wage growth is likely to peak early this year, but the path further ahead remains uncertain, a new forecasting tool developed by the European Central Bank showed on Friday.
• The ECB has singled out wages as the most important variable in determining whether it can start cutting interest rates and call time in the fight against high inflation.
• Its new wage tracker, detailed for the first time in a paper published on Friday, showed growth in compensation hitting a peak at around 5% early this year.
• However, the jury was still out on whether and how quickly pay rises would fall back towards the 3% level the ECB considers compatible with its 2% inflation goal. "Negotiations over the first quarter of 2024 are likely to be decisive for the development of wage pressures over 2024," the authors of the paper wrote.

(Source: Reuters)

• Tropical Battery Company Limited acquired Rose Electronics Distributing Company (Rose Batteries), based in San Jose, California (Silicon Valley). Founded in 1963, Rose Batteries is a manufacturer of specialized batteries for high value industries requiring critical power, including healthcare, robotics, aerospace, and telecommunications.
• The acquisition of Rose Batteries represents a significant milestone in Tropical Battery’s strategy of diversification into new complementary product lines, market segments, and geographies, and reaffirms the company’s commitment to technological innovation and growth in the global energy market.
• The acquisition was completed through Tropical’s US subsidiary - Tropical Battery USA LLC. “This acquisition reaffirms our commitment to transforming Tropical Battery into a multinational organization at the vanguard of innovative growth in emerging segments driving the transition to more sustainable energy solutions,” commented Tropical Battery Managing Director Alexander Melville. 
• Listed on the Jamaica Stock Exchange in 2020, Tropical Battery has diversified beyond its core car battery business into automotive care products, renewable energy, and electric mobility as part of its transformation into a diversified energy group enabling sustainability with innovation, technology and exceptional service delivery.
• Tropical Battery’s stock price has appreciated by 24.6% since the start of the year and currently trades at a P/E of 17.11x earnings, which is above the junior market distribution sector average of 16.60x earnings.

(Sources: JSE & NCBCM Research)

• Aided by robust revenue growth and a reduction in finance costs, LASM reported $568.30Mn in net profit attributed to shareholders for Q3 2023 representing an increase of 16.6% in profitability compared to Q3 2022.
• Revenues for the quarter increased by 10.94% to $3.22Bn driven by an increase in business activity.
• Cost of sales grew in line with the higher sales. Cost of sales grew by 13.95% (Q3) year on year, in response to input cost increases, due mainly to increased maintenance and labour costs. As a result of cost expanding at a faster pace than revenues, the gross profit margin fell slightly in the quarter to 37.0% from 37.8% in 2022.
• Operating Expenses were up 19.1% year over year to $420.01Mn for the quarter which may have been influenced by inflationary increases in variable expenses associated with increased revenues as well as escalating costs due to global supply chain challenges arising from delays in the Panama and Suez Canals.
• LASM continues to prioritise organic profitable growth and incremental margin improvements. Its value creation strategy includes investments in its brands, innovation, and technology, and continued improvements in operational efficiencies. Further, with the negative impacts of current geo-political conflicts and climate related impacts on transit via the Panama Canal, LASM has committed to continue taking appropriate measures to minimise disruptions to its operations.
• With the third quarter outturn, earnings for the nine months to December amounted to $1.71Bn, an increase of 24.7% over the same period in 2022.
• LASM’s stock price has increased by 5.6% since the start of the calendar year. The stock closed Thursday’s trading session at $4.90 and trades at a P/E of 8.54x, below the Junior Market Manufacturing Sector Average of 26.17x.

(Sources: JSE & NCBCM Research)

• Deputy Administrator Ilya Espino stated that the Panama Canal sees no need for further vessel transit restrictions until at least April when its authority will evaluate water levels at the end of the dry season.
• Of note, a severe drought last year forced the canal to reduce the number of vessels allowed to pass per day. In December, rains in the last quarter of the year allowed the waterway to suspend further restrictions that would have been applied in January.
• In recent months, attacks on ships at the Red Sea have prompted many vessel owners to take longer routes to and from Asia, increasing demand for transit through Panama. As such, Espino said "At least until April, we will maintain 24 authorized transits per day.
• If rains arrive in May as expected, the canal authorities plan to progressively increase daily slots, with the objective to return to about 36 vessels per day, which is a normal number during the rainy season. However, if rains are short of expectations, the authority could apply further restrictions to either daily passage or draft, a vessel's maximum depth.
• The need to preserve water levels at reservoirs feeding the canal has stopped it from absorbing incremental demand emerging from the Red Sea, where the attacks have hindered ships trying to pass through the Suez Canal, the world's busiest waterway, Espino said.
• Due to the transit restrictions, the Panama Canal Authority has forecast a reduction of up to $700Mn in toll revenues for the current fiscal year ending in September. In 2024, the canal might miss a total of 1,500 vessels that would pass through in normal conditions, Espino said.

 (Source: Reuters)

• Fitch Solutions highlighted greater political risk in Costa Rica going forward, underpinned by a rise in social discontent and the recent anti-government protests, in addition to mounting security challenges.
• Thousands demonstrated on October 25 2023 in San Jose in protest of the perceived deterioration in public service delivery in healthcare and education. These protests were not the first of the year; in June thousands demonstrated against the government’s decision to avoid increasing spending on education. 
• These demonstrations are largely associated with President Rodrigo Chaves’s fiscal consolidation agenda. Furthermore, persistent fiscal tightening is likely to keep these risks high at least until the conclusion of the IMF-backed reform programme.
• While having risen, Fitch believes that these risks are nonetheless capped by a lack of inflationary pressures and low unemployment.
• A combination of appreciations in the local exchange rate and stabilising global commodity prices has brought Costa Rica into deflation, implying a strengthening in household purchasing power. Similarly, the unemployment rate fell below 8.0% for the first time since the Covid-19 pandemic. Taken together, these factors will help cap the frequency of protests going forward, or at least contain discontent to the normal democratic channels.  

 (Source: Fitch Solutions)

• China's central bank on Thursday said it would keep policy flexible and precise to boost domestic demand, while maintaining price stability, amid signs of a patchy economic recovery and rising deflationary risks. In its quarterly policy implementation report, the People's Bank of China said the authorities face some difficulties and challenges in promoting an economic recovery amid global uncertainties.
• "Prudent monetary policy should be flexible, moderate, precise and effective, and keep the scale of social financing and the money supply in line with the expected goals of economic growth and price levels," the bank said. The central bank will "strengthen policy coordination and cooperation, effectively support promoting consumption, stabilizing investment, expanding domestic demand, and maintaining prices at a reasonable level", it said.
• Data on Thursday showed China's consumer prices fell at their steepest pace in more than 14 years in January, while producer prices also dropped, ramping up pressure on policymakers to do more to revive an economy low on confidence and facing deflationary risks.
• The PBOC said it would "promote the marketisation of deposit interest rates to drive the overall interest rate level downward." The bank added that it would also make good use of its pledged supplementary lending facility to support the property market, which weighs heavy on China's economic growth prospects despite having once been a pillar of the economy.

(Source: Reuters)

• As Tesla CEO Elon Musk reportedly ponders layoffs, recent financial reports from U.S. automakers show the leading electric vehicle (EV) manufacturer lags in the amount of revenue generated for each of its employees.
• Tesla reported almost $97Bn in revenue last year, equivalent to just under $690,000 for each of its over 140,000 employees. By comparison, General Motors generated over $1Mn in revenue for each of its 163,000 employees in 2023, and Ford Motors raked in $937,000 for each of its 173,000 workers.
• Tesla's gross margins - once the envy of other automakers - shrank in the December quarter to their lowest since 2019. In the same quarter, its revenue rose 3% to $25.17Bn, its slowest pace of growth in more than three years.
• While Tesla's revenue per worker lagged GM and Ford last year, it improved over 2022, when it was $637,000. Tesla increased its global workforce by about 10% in 2023, according to a recent filing.

(Source: Reuters)

• On January 19, 2024, the Directors of Seprod received a notice of the Take-Over Bid Offer from Musson Investments Limited (MIL) to purchase 13,948,000 ordinary shares in the capital of the company not owned by the Musson Group. The price being offered is J$78.00 per share.
• MIL is a wholly-owned subsidiary of Musson (Jamaica) Limited. Prior to the Offer, Associates of MIL collectively owned 366,772,031 Shares, representing 49.99978% of the total issued shares of Seprod. Musson (Jamaica) Limited then acquired 1,630 Shares, which caused the total percentage held to be increased to 50.00000%. This resulted in MIL making the Offer pursuant to the Jamaica Take-Over Code.
• After review of the Offer, Seprod’s Special Committee concluded that the Offer was fair to the shareholders of Seprod and recommended that the board of Directors issue a positive recommendation on same.
• The Board of Directors made its recommendation based on the following reasons: The Offer Price is reasonable in relation to the multiple of comparable trading companies and recent trading history, MIL does not intend to make any changes to the management or business of Seprod, and MIL does not intend to seek de-listing of Seprod.
• The Offer Price presents a 7.28% discount to the January 19, 2024, trading price of J$84.12. It also represents a 4.09% discount to the average trading price of J$81.33 for the last 30 days. The offer price implies a price-to-earnings (P/E) multiple of 16.50x above the Main Market Manufacturing & Distribution Sector Average of 15.38x.
• The Offer Circular outlined that the offer opened on January 24, 2024, and will close at 4:00 p.m. on February 15, 2024.

(Source: JSE)