• Fitch Solutions forecasts that Panama’s current account deficit will widen from 4.2% of GDP in 2022 to 5.0% in 2023, before narrowing slightly to around 4.0% in 2024.
• The deterioration in Panama’s external position last year (from 3.2% to 4.2%) mostly reflected a weakness in goods trade linked to the run-up in commodity prices. While commodities pulled back somewhat over H123, food and energy prices in particular remain well above their 2015-2019 averages.
• Meanwhile, drought conditions have resulted in around a 10% decline in the number of ships passing through the Panama Canal, with the risk of more stringent measures being introduced later this year.
• This will weigh heavily on services exports, which account for around 40% of total exports. An easing of this drought should help the current account deficit fall to around 4.0% of GDP in 2024.
• While Panama’s external accounts will continue to compare poorly to peers in the Central American region, Fitch believes that risks to macro stability are contained. Panama has long-run large current account deficits – averaging 6.8% of GDP between 2015 and 2019 – reflecting its status as both an offshore financial centre and a regional hub for foreign direct investments (FDI).
• Persistently strong inward capital flows have consistently led to a large financial account surplus, the root cause of the wide current account deficit. While this year’s deficit will to a greater degree reflect weakness in exports, Fitch anticipates that it will be more than offset by inward capital flows linked to the fact that 1) Panama is expected to come off the Financial Action Task Force’s grey list later this year and 2) the government aggressively targeting near-shoring related FDI.

(Source: Fitch Solutions)

• Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated.
• That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle. However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
• That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years. 
• “Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening,” the minutes said.
• There was also a concern over problems with commercial real estate. Specifically, officials cited “risks associated with a potential sharp decline in Commercial Real Estate (CRE) valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds.
• Recent data shows the Fed has made good progress in decreasing inflation, however, they remain cautious as policymakers in the 1970s declared victory too soon on double-digit inflation by backing off quickly when prices showed tentative signs of backing off.

(Source: CNBC)

• A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase.
• The Rating agency would have cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.
• The credit rating firms relied upon by bond investors have roiled markets lately with their actions. Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist. Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads, a move that was ridiculed by business leaders.
• The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders. The country’s two largest banks by assets, JPMorgan and Bank of America would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate.
• If top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe. That could potentially push some weaker lenders closer to non-investment-grade status.

(Source: CNBC)

• For July 2023, the All-Jamaica Consumer Price Index (CPI) increased by 1.1% for July 2023 influenced mainly by a 2.3% rise in the index for the division ‘Food and Non-alcoholic Beverages’.
• The increase in the division’s index was due largely to a 9.9% increase in the index for the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. Drought conditions continued to adversely affect the supply of agricultural produce resulting in higher prices for items such as cabbage, Irish potato, tomato, sweet pepper and yam.
• The inflation rate was also impacted by a 0.5% increase in the index for the ‘Housing, Water, Electricity, Gas and Other Fuels’ division. This was mainly due to higher electricity, water and sewage rates.
• Additionally, the index for the division ‘Recreation, Sport and Culture’ increased by 0.4%. This was mainly impacted by a 0.5% increase in the index for the group ‘Newspaper, Books and Stationery’ due to higher prices for books and stationery supplies.
• The point-to-point inflation rate from July 2022 to July 2023, was 6.6%. The main contributors were increases in the divisions: ‘Food and Non-Alcoholic Beverages’ (11.3%); ‘Restaurants and Accommodations Services’ (12.4%); ‘Furnishings, Household Equipment and Routine Household Maintenance’ (11.3%); and ‘Housing, Water, Electricity, Gas and Other Fuels’ (1.6%).
• The rise in the index of the ‘Food and Non-Alcoholic Beverages’ division was influenced mainly by a 31.6% increase in the class ‘Vegetables, tubers, plantains, cooking bananas and pulses’. Over the period, there were higher prices for yellow yam, sweet potato, Irish potato, carrot, tomato and cabbage. Other notable increases were, ‘Cereals and cereal products’ (6.5%) and ‘Meat and Other parts of slaughtered land animals’ (4.9%). Contributing to the increase in the index for the ‘Restaurants and Accommodation Services’ division were higher prices for meals consumed away from home purchased from fast-food restaurants and street vendors.
• The increase in the division ‘Furnishings, Household Equipment and Routine Household Maintenance’ was mainly due to a 13.9% increase in the index for the group ‘Goods and Services for Routine Household Maintenance’. This resulted from the increase in the National Minimum Wage for Jamaica implemented on June 1, 2023. For the division ‘Housing, Water, Electricity, Gas and Other Fuels’ the index increased by 1.6%. This was largely the result of increases in the index for the groups, ‘Imputed Rentals for Housing’ (2.2%) and ‘Electricity, Gas and Other Fuels’ (1.3%).
• The BOJ is set to make its policy rate announcement on August 18 and we expect that the Bank will continue to hold its rate at 7% as it watches the pass-through effects of the previous rate hikes on deposit and loan rates. The BOJ had indicated that the inflation rate is anticipated to remain above the target range until the September 2023 quarter. This will be driven by recent increases in telephone and internet rates and the national minimum wage, seasonally higher agricultural prices as well as pending increases in other regulated prices such as transport. Although inflationary pressures have been sticky downwards in the last few months, inflation is anticipated to moderate further over the 1-year forecast horizon, supported by the BOJ's monetary policy tightening and the softening in global prices as the risk of a global slowdown rises.

(Sources: BOJ and STATIN)

• STATIN has reported that the unemployment rate in April 2023 was 4.5%, 1.5 percentage points lower than in April 2022.
• In April 2023, there were 1,373,800 persons in the Labour Force, which was 1.7% higher than in April 2022. Of this, 730,000 were males and 643,800 were females. Compared to April 2022, the male labour force increased by 0.6% and the female labour force by 3.0%. The participation rate for females (60.2%) increased by 1.7 percentage points compared to males (70.9%), which increased by 0.4 percentage points.
• Of the 1,312,600 persons employed in April 2023, 705,200 were males and 607,400 females. There were 43,300 (3.4%) more employed persons than in April 2022 (1,269,300). There were 13,600 (2.0%) more males and 29,700 (5.1%) more females in the employed labour force.
• Service Workers Shop and Market Sales Workers and ‘Elementary Occupations’ accounted for the largest increases in the employed workforce. There were 311,600 persons employed in ‘Service Workers and Shop and Market Sales Worker’ group in April 2023, 9.8% more when compared to April 2022. The number of employed persons in ‘Elementary Occupations’ was 173,100, an increase of 12,800 persons (8.0%) compared to April 2022.
• There was a notable decline in the number of persons working as ‘Skilled Agricultural and Fishery Workers’. Despite the increase in employment across most industry groups, there was a downturn in the numbers employed mainly in ‘Agriculture, Forestry and Fishing’. In April 2023, 182,500 persons were working in the industry, a decline of 7,800 persons (4.1%).
• In April 2023, there were 61,300 unemployed persons, 19,700 (24.3%) fewer persons compared to April 2022. The number of unemployed youths (persons aged 14 -24 years) was 24,600, a decrease of 6,800 (21.7%). The unemployment rate for April 2023 was 4.5%, 1.5 percentage points lower than the 6.0% in April 2022. The male unemployment rate was 3.4% and 5.7% for females; both declined when compared to 4.7% and 7.6%, respectively, in 2022.
• The number of persons Outside the Labour Force was 725,700 in April 2023, a decrease of 20,700 (2.8%) compared to 746,400 in April 2022. There were 300,200 males and 425,500 females outside the labour force, a decline of 3,600 (1.2%) males and 17,100 (3.9%) females relative to April 2022.

(Source: STATIN)

• The Minister of Tourism, David Collado, revealed that the Dominican Republic continues to reach unprecedented numbers in the tourism sector by registering the arrival of 792 981 non-residents in July of this year alone, making it the best month in the entire history of the country and surpassing July and December 2022, which had been until now the only months in which the government had managed to break the barrier of 700,000 tourists.
• He reported that of the 792 981 tourists, 652,506 were foreigners and 140,475 Dominicans, representing a growth of 34% over 2019, 41% over 2021, and 8% over last year. The official said that sustained growth is also reflected in the cruise industry after noting that the country received 148,560 cruise passengers by sea in July alone.
• He further noted that in the January-July period, 1,416,011 cruise passengers arrived in the Dominican Republic, “something never seen before in the history of tourism”. “If we add the 792,981 tourists who arrived last month by air and the 148,560 visitors who arrived by sea, we are talking about 941,541 visitors. Something historic in the month of July,” said Collado.
• He also indicated that for the first time, the country registered the arrival of 6,295,667 visitors in the first seven months of the year. He detailed that the Dominican Republic received 4,879,656 tourists in January-July, plus 1,416,011 cruise passengers.
• The central countries of origin of tourists in July were the United States with 54%, Canada with 8%, Puerto Rico with 5.1%, Colombia with 3.7%, as well as Spain. The top cities were New York, with 6.8%, followed by Miami, Bogota, Lima, and Santiago.

(Source: Dominican Today)

• The "growth acceleration" plan recently launched by Brazil foresees 1.7 trillion reais (US$347.5 billion) in investments that will rely increasingly on public-private partnerships; while driving a new ecological transition plan, the government said.
• The programme, known under its Portuguese acronym PAC, revisits an initiative that President Luiz Inacio Lula da Silva first introduced in 2007 during his earlier term in office to raise investments in energy, logistics, and urban and social infrastructure.
• It was later expanded under his successor, former President Dilma Rousseff. Critics say it incurred excessive spending, exacerbating Brazil's fiscal crisis, while failing to bring fundamental advances in infrastructure.
• This time Lula's government says the plan will follow a path marked by stronger partnerships between the public and private sectors, with more than 1.3 trillion reais estimated to be disbursed by 2026.
• According to the government, 371 billion reais - or 22% of the total - are set to be invested by the federal government, while state-owned firms such as oil giant Petrobras would inject 343 billion reais. The private sector is seen investing a total of 612 billion reais.
• The government did not immediately detail the fiscal impact of the initiative, or give a specific time frame for the plan.
• Even though the plan includes several projects in the oil and gas sector led by Petrobras and investment in the pre-salt offshore oilfields, Lula's team emphasized its environmental goals and announced an "ecological transition plan."
• Finance Minister Fernando Haddad said the ecological plan would be focused on establishing a regulated carbon credit market, issuing sustainable sovereign bonds and reformulating a climate fund that aims to bring down emissions. "We'll accelerate growth in our country and help stop the degradation of our planet," Haddad said in a speech.

(Source: Reuters)

• Treasury yields resumed their climb this week with two-year yields approaching 5% and 10-year yields just off their post-pandemic highs. The potential for a higher neutral real rate is one reason yields are rising. Not only has real GDP growth held up at 2%+, but it also appears to be broadening away from services spending. A strong retail sales reading on August 15 would confirm that the goods spending is once again expanding.
• Treasury yields are rising. One of the most important structural drivers of the move higher in yields is building evidence that the neutral real rate of interest, is at least temporarily more elevated. If that’s the case it would mean a more extended period of higher rates would be warranted and that longer-term yields might need to rise higher to slow the economy.
• The focus of spending in the US shifted to services after the pandemic, and this made strong GDP growth look less sustainable. Recession expectations were partially premised on services spending slowing down without other components of growth offsetting the services slowdown.
• Instead of softening as projected, Q2 GDP showed a broadening of growth to categories like business equipment investment. Housing which had been a drag is now poised to offer a positive contribution in Q3.
• The manufacturing sector is in contraction, but Purchasing Managers Index PMI) and Institute for Supply Management (ISM) readings are just sub-50 and stronger durables orders across categories suggest above-50 readings may not be far off. Relatedly, it appears that goods spending is once again expanding.

(Source: Citi Research)

• TransJamaica Highway Limited recorded a net profit of US$6.03Mn for the quarter of its that ended June 30, 2023, a 343.8% yoy increase in profitability. The first half of the year also witnessed strong financial performance with profits totalling US$11.01Mn, marking a  441.9% increase when compared to the same period of the previous year.
• For the quarter ended June 30, 2023, the Group had revenue of US$18.22Mn, reflecting an 18.2% increase compared to revenue of US$15.41Mn for the same quarter in 2022. Revenue for the six months ended June 30 2023 was US$36.21Mn, compared to US$30.29Mn for the same period in 2022, an increase of 19.6%. This was due to greater levels of traffic over the previous year in addition to movements in the toll tariff which is reviewed annually.
• Operating expenses for Q2 2023 were US$5.47Mn, a notable 42.3% drop from the US$9.48Mn in Q2 2022. The first half of the year also saw decreased operating expenses, dropping from US$19.24Mn to US$10.96Mn, a 43.0% decline. This decrease is mainly due to cost savings from the acquisition, which enabled fee modifications, hence lowering operational costs. This was however offset by higher consultancy fees as the company has undertaken an exercise to restructure its operations, higher amortization cost of intangible assets associated with more traffic, higher marketing cost associated with promoting the usage of my t-Tag App and also to encourage greater usage of the Tags, as well as higher insurance cost and security maintenance costs.
• Administrative expenses, largely consisting of staff costs, plant and equipment depreciation, and regular office expenditures, were US$2.00Mn for Q2 2023. This represents a rise of US$1.68Mn from US$0.32Mn in Q2 2022, primarily because of the subsidiary's staff and related costs. For H1 2023, administrative expenses were US$4.06Mn, up by US$3.40Mn from the US$0.66Mn in H1 2022, influenced by similar factors and higher consultancy fees.
• TJH’s stock price has increased by 80.7% since the start of the calendar year. The stock closed Monday’s trading session at $2.53 and currently trades at a P/E of 13.4x which is below the Main Market Energy, Industrial, and Materials Sector Average of 15.6x.
• While the JIO acquisition led to a one-time settlement loss of US$13.9Mn, TransJamaica is set to benefit in the long run. Anticipated annual cost savings exceeding 50% (approx. US$12Mn) will significantly cut operating expenses and boost profitability. The reopening of schools in September is likely to augment traffic, further enhancing revenue. These combined factors are poised to uplift TransJamaica's financial performance in the upcoming quarters.

(Sources: JSE and NCBCM Research)

• Local investors can trade shares issued on the Canadian market using select local brokers under the newly introduced Direct Market Access portal by the Jamaica Stock Exchange.
• This will allow Canadian stocks to be available for trading through brokers Cumax Wealth Management and Barita Investments, eliminating the need to set up an account at a Canadian brokerage house.
• The Jamaican brokers will execute the orders of their clients through the DMA portal.
• The JSE plans to expand the platform to other exchanges abroad and will eventually allow overseas investors in those territories to buy shares listed on the Jamaica market through the DMA.
• The next phase will expand access to additional exchanges around the globe.
• The JSE's new DMA platform makes international trading easier for Jamaican investors. This not only provides more options for local investors but also strengthens Jamaica's ties with global markets. This development is good news for investors looking for diverse opportunities and for the overall growth of the capital market.

(Source: RJR News)