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Week Ahead: May Inflation Prints May Show A Deceleration Of Price Pressures Published: 07 June 2022

  • Fitch will be closely monitoring the upcoming May inflation prints from Brazil, Chile, Colombia and Mexico. Notably, commodity prices are expected to remain elevated throughout 2022, as the Russia-Ukraine conflict and the subsequent economic sanctions on Russia continue to disrupt the global supply of fuel and food in particular—the two countries provided 27% of global wheat exports and 14% of global corn exports in 2019. 
  • In addition, persistent supply chain issues, exacerbated by COVID-19 lockdowns in China that shutdown ports and stranded freight ships will also contribute to price pressures. That said, the Agency’s global team forecasts that headline inflation growth will peak by end-Q2 2022. 
  • Of note Peru’s May inflation print last week showed inflation reached 8.1% YoY, up only modestly from 8.0% YoY in April, possibly signaling that the peak of price growth is approaching. 
  • Higher government spending on gasoline subsidies across several markets (including Chile, Colombia and Mexico) will reduce fuel costs for households.

(Source: Fitch Solutions)

Digital Currency Coming For Barbados, Rest Of Region Published: 07 June 2022

  • Barbados will be one of the first two Caribbean countries in which a common Central Bank Digital Currency (CBDC) is to be rolled out. The CaribCoin project, as it is being referred to, is a joint venture between Schröder, the Chief System Architect, and the Caribbean-based technology accelerator Abed Ventures. 
  • Caribcoin would first be rolled out in Barbados and Jamaica and then other Caribbean countries. However, renowned regional financial and economic expert Marla Dukharan suggested that each country in the region could do well with their own digital currency while adding that there was especially a need for a cross-border settlement system. 
  • Pointing to some of the benefits of a digital currency, Schöder said it allowed for faster transactions and was more accessible, safe, sustainable and stable. It also presents an opportunity to create a pan-Caribbean digital money, that can be used across the region. 
  • A common CBDC would also deliver seamless, faster and cheap payments, provide liquidity and enable a fast-track towards a CARICOM Single Market & Economy (CSME) without a need to replace national currencies but simultaneously enhance financial inclusion in the region.

(Source: Barbados Today)

Fed’s Mester says inflation hasn’t peaked and multiple half-point rate hikes are needed Published: 07 June 2022

  • Cleveland Federal Reserve President Loretta Mester said on Friday (June 3rd, 2022) that there is not ample evidence that inflation has peaked and thus is on board with supporting a series of aggressive interest rate increases. 
  • While other recent data points have shown that at least the rate of inflation increases has diminished, the policymaker has highlighted the importance of having multiple months of this trend before accurately stating that inflation has already peaked. 
  • The recent statements from the rate-setting Federal Open Market Committee indicated that 50 basis point rate increases are likely at the June and July meetings. Officials are then likely to evaluate the progress that the policy tightening and other factors have had on inflation. Mester said any pause in rate hikes was unlikely, although the scope of the hike could be scaled down.

(Source: CNBC)

China's May exports, imports seen recovering as supply chains restart Published: 07 June 2022

 

  • China's exports are expected to have expanded at a faster pace in May as factories reopened and supply chain disruptions calmed after Shanghai began to emerge from a lockdown, while imports also likely rose, a Reuters poll showed. 
  • The recovery adds to evidence the world's second-largest economy has begun to chart a path out of the supply-side shock that rocked world trade and global markets. However, China's trade outlook faces risks from factors such as high raw material costs, uncertainties from the Ukraine war and as recovering production overseas affects demand for Chinese goods. 
  • Shanghai's COVID-19 lockdown, which officially ended on June 1, snarled logistics and regional supply chains but there are signs of a turnaround. Official data showed the average daily container throughput at the Port of Shanghai rose 7% in May from a month earlier. 
  • Exports in May likely grew 8.0% from a year earlier, accelerating from a 3.9% expansion in April, according to a median forecast in a Reuters poll of 28 economists. Imports were expected to have risen 2% year-on-year in May, the poll showed, likely driven by imports of raw materials and intermediate goods as domestic production resumed. That compared with flat growth in April. China's trade surplus is likely to have widened to $58Bn from $51.12Bn in April.

(Source: Reuters)

PIOJ Reports 8.1% Growth For 2021/22 Published: 06 June 2022

  • As reported by the Planning Institute of Jamaica (PIOJ), the economy is estimated to have grown by 8.1% during fiscal year 2021/22. 
  • This outturn, which falls within the entity’s target range of 7% to 9%, reflects improved performances in all goods producing and service industry subsectors, except mining and quarrying, which contracted by an estimated 39.8% owing to the closure of Jamalco and Alpart. 
  • The expansion in economic activity for the fiscal year was spurred, in part, by an estimated 6.0% growth for the January to March 2022 quarter. 
  • This outturn represented the fourth consecutive quarter of growth and reflected a continuation of the recovery trend, following contractions in the corresponding quarter [in 2021] as a result of the COVID-19 pandemic and associated public health and social measures implemented to manage its spread. 
  • Additionally, the BOJ indicated that growth in 2022/23 is projected to be in the range of 2% to 4%, driven primarily by the resumption of the tourism sector.

(Source: JIS News)

Delta Confirms Higher Seat Capacity For FY 2022/23 Published: 06 June 2022

  • Delta confirmed that their seat capacity to Jamaica for 2022/23 is up 1% over the same period in the pre-pandemic 2019/20 year. The airline also confirmed the return of service from Detroit and Minneapolis for Winter 2022/2023 to daily service for the first time since the pandemic started. 
  • This resumption of daily non-stop service from two of Delta’s key Midwest gateways for Winter 2022/2023 combined with a capacity increase over pre-pandemic levels is a distinct vote of confidence in the ongoing recovery of tourism to Jamaica,” said Donovan White, Director of Tourism, Jamaica Tourist Board. 
  • This is a part of the country’s initiative to secure strong airlift and it is also a  clear indication that we are well on our way toward returning our stopover arrivals to growth over 2019, the year when we received our highest number of stopover visitors to date. 
  • Delta is one of the top air passenger carriers serving Jamaica from the U.S. During peak winter seasons, it flies non-stop to Montego Bay’s Sangster International Airport (MBJ) from Boston, Minneapolis, New York, and Atlanta as well as to Kingston’s Norman Manley International Airport (KIN) from Atlanta multiple times each week.

(Source: Our Today & NCBCM Research)

Political Risks In Cayman Islands Contained For Now Published: 06 June 2022

  • Fitch Solutions sees limited threats to political stability in the Cayman Islands over the coming quarters as pandemic risks fade and the country's economic recovery accelerates. The successful COVID-19 vaccination rollout should help pandemic risks to fade. As of May 23 91.4% of the population were fully vaccinated and 36.0% had received a booster dose. This strong inoculation rate will positively impact the rebound in tourism activity which will help economic recovery to gain momentum. 
  • Against this backdrop, the Cayman Islands' Short-Term Political Risk Index (STPRI) score was revised to 68.8 out of 100, from a previous 68.1. This primarily reflects an increase in the 'policy continuity' sub-component score from 70.0 to 75.0 (out of 100), given the lower risk that the government will face political gridlock, and the policy direction is likely to remain broadly pro-business. However, the overall increase in the STPRI score reflects moderately higher risks of public protests in the face of rising inflationary pressures.
  • Consumer price inflation rose to 7.6% y-o-y in Q4 2021, and this figure is expected to rise further during H1 2022. This comes as a result of the economy’s heavy dependence on imports, which leaves it exposed to elevated global commodity prices and supply chain disruptions caused by Covid-19 lockdowns and the war in Ukraine. 
  • Although price pressures are expected to ease in H2 2022 on the back of an ease of the lockdown restrictions in Shanghai, Fitch forecasts average inflation of 6.9% in 2022, up from 3.3% in 2021. This will erode household purchasing power and weigh on domestic demand, putting pressure on the government to take action to soften the impact on living standards.

(Sources: Fitch Solutions & NCBCM Research)

Cruise Port Hits 97% End-May Occupancy Published: 06 June 2022

  • Passenger occupancies on vessels at Nassau Cruise Port in the final week of May exceeded 97%, signalling that the sector is closing on full recovery from COVID-19’s ravages. Michael Maura, the Prince George Wharf operator’s chief executive, recorded 51,402 passengers during the last seven days in May - a number that was just shy of the combined 52,798 maximum guest capacity on the vessels at the port. 
  • Comparing 2022’s performance year-to-date to 2019, the vessel occupancies and passenger volumes at Nassau Cruise Port are up by 24% and 4.8%, respectively. 
  • Nassau Cruise Port was also highlighted by its 49 percent controlling shareholder, Global Ports Holding, as being one of two facilities - Antigua being the other - that produced the greatest increase in passenger volumes during the three months to end-March 2022. 
  • Disclosing how Nassau is a key component in its growth strategy, Global Ports Holding said: “Long-term, the outlook for the cruise industry continues to be positive.” The passenger capacity of the industry is forecasted to grow by 45% by 2027 from 2019 levels, driven by the 75 cruise ships currently in the cruise ship order book and due for delivery by 2027. This would in turn positively impact the country’s bread-and-butter, tourism, which would spill over into other sectors and overall economic growth.

(Source: The Tribune)

10-Year Treasury Yield Dips As Data Show Slowest Job Growth In Pandemic Recovery Published: 06 June 2022

  • The U.S. 10-year Treasury yield dipped Thursday, as investors looked to employment data showing the slowest pace of job creation in the pandemic recovery so far. The yield on the benchmark 10-year Treasury note fell less than 1 basis point to 2.926%. The yield on the 30-year Treasury bond moved slightly higher to 3.094%. 
  • Private sector employment rose by just 128,000 in May, payroll processing firm ADP reported Thursday. That fell well short of the 299,000 Dow Jones estimate and marked a decline from the downwardly revised 202,000 in April, initially reported as a gain of 247,000. The benchmark rate eased as traders took the ADP report to mean the economy is already slowing, suggesting the Federal Reserve could be less aggressive in tightening monetary policy. 
  • Meanwhile, Fed Vice Chair Lael Brainard said it’s unlikely the central bank will be taking a break from its current rate-hiking cycle anytime soon as inflation remained at a 40-year-high. It is anticipated that a lot of work still needs to be done to get inflation down to its 2% target. 
  • Rising prices around the world remain a key concern for investors, with euro zone inflation hitting 8.1% in May, according to data released on Tuesday. 
  • On the data front, Wednesday, the number of April job openings declined sharply from the previous month — but the findings suggest the job market remains tight. Further, the Institute for Supply Management said its manufacturing PMI (purchasing managers’ index) came in at 56.1 for May, up from 55.4 the month before.

(Source: CNBC)

OPEC+ Brings Forward Oil Output Rises As Biden's Saudi Visit Looms Published: 06 June 2022

  • Saudi Arabia and other OPEC+ states agreed to bring forward oil production increases to offset Russian output losses to ease surging oil prices and inflation and smooth the way for an ice-breaking visit to Riyadh by U.S. President Joe Biden. 
  • OPEC+ said it had agreed to boost output by 648,000 barrels per day (bpd) in July - or 0.7% of global demand - and a similar amount in August versus the initial plan to add 432,000 bpd a month over three months until September. 
  • The move will be seen as a sign of willingness by Saudi Arabia and other OPEC Gulf nations to pump more after months of pressure from the West to address global energy shortages worsened by Western sanctions on Russia. 
  • Oil rose on the news to $117 a barrel as analysts said the real production boost will be insignificant as most OPEC members except for Saudi Arabia and the United Arab Emirates are already pumping at capacity. Earlier this year, oil came close to an all-time peak of $147 hit in 2008. 
  • OPEC+, an alliance of the Organization of the Petroleum Exporting Countries and other producing nations, includes Russia, whose output has fallen by about 1 million bpd following Western sanctions on Moscow over its invasion of Ukraine. 
  • With the Ukraine war adding to a tight crude market, the U.S. administration has sought more supplies from Gulf allies such as Saudi Arabia, as well as from Iran whose output has been restricted by U.S. sanctions that could be lifted if a nuclear deal is reached.

(Source: Reuters)