Latin America

The fate of the dollar will shape financial markets in 2019

Latin America

After rising by 7% against a basket of currencies in 2018, where is it headed next?

Over the holidays those who like their Christmas films free of seasonal cheer may have fixed on “The Lion in Winter”, with Peter O’Toole as Henry II and Katharine Hepburn as Eleanor, his estranged wife. Henry decides that none of his sons by Eleanor is a suitable heir and condemns them to death. Locked in a cellar as his father approaches, Richard resolves not to cower. “As if the way one falls down mattered,” mocks one of his brothers. “When the fall is all that is,” replies Richard, “it matters”.

Back at work, investors might usefully apply this aphorism to the fate of the dollar. In a volatile period for financial markets, it rose by 7% against a broad basket of currencies in 2018 and by 4% against a narrower group of rich-country currencies (see chart). One of the more robust principles of foreign-exchange trading is that what goes up must eventually come down. The dollar is over-valued on benchmarks, such as The Economist’s Big Mac Index (see Graphic Detail). It is due a fall. When that is all that is left, the manner of its falling will matter a great deal.

The bear case for the dollar is based on an expectation that gdp growth in America will slow markedly. Last year, it was boosted by tax cuts. That stimulus will fade. Interest-rate increases by the Federal Reserve will bite harder. A lower oil price is a factor. It hurts investment in America’s shale regions, but is a boon for oil-importing countries in Asia and Europe. America’s stockmarket is relatively dear. Its tech darlings no longer seem invulnerable. In short, an exceptional period for America’s economy is coming to an end. The dollar ought to lose ground, too.

But not just yet. In November Mansoor Mohi-uddin of NatWest Markets set out three pre-conditions for a decisive turn in the dollar: a “pause” by the Fed, a deal to end America’s trade dispute with China and signs of a pickup in the euro-zone economy. The first is now less of a hurdle. The Fed’s boss, Jerome Powell, hinted on January 4th that it might postpone further interest-rate increases. Talks on trade with China have resumed. But the economic data from Europe remain weak. Interest rates in America may not rise much further, if at all, but they are nevertheless higher than in Japan or the euro zone. Owning the dollar is still rewarding.

How might that change? Broadly, there are two scenarios. In the first, trade-war clouds begin to disperse. Tax cuts and looser monetary policy in China start to stimulate private-sector spending. That stirs other Asian economies, which in turn bucks up activity in the euro zone, which relies heavily on emerging-market demand. Bond yields rise in the expectation that interest rates will go up in Europe. They fall in America, as traders start to price in rate cuts. The dollar drifts down against the euro. A softish Brexit boosts the pound. Capital is pushed into emerging markets, in search of better returns. Stockmarkets rally, especially outside America. Everyone breathes a sigh of relief. It feels like 2017 again.

In the second scenario, the gap between gdp growth in America and elsewhere also narrows. But in this case, it does so solely because of a slowdown in America, rather than better news elsewhere. The trade dispute escalates. The continued uncertainty means China’s tax cuts are saved, and not spent. Further weakness in China causes other emerging markets to falter. The soft spot in the euro-zone economy turns out to be not temporary, but a reflection of weak export demand. Risk assets sell off across the board. The dollar falls sharply against the yen and the Swiss franc, habitual boltholes for the panicky. The euro stays weak. A shortage of safe-harbour currencies leads to a rising price for gold.

How closely reality conforms to one or other of these scenarios depends a lot on what happens in China. A trade deal with America would boost emerging-market currencies against the dollar, as would an effective fiscal stimulus. The path the dollar takes against rich-country currencies depends on the slowdown in America, says Kit Juckes of Société Générale, a French bank. If it is sudden, the dollar falls against the yen. If it is gradual, it falls against the euro.

How the dollar falls will be shaped by events and in turn will shape them. Investors who are wary of selling out of risk assets are advised by strategists at J.P. Morgan to take out some insurance by buying the yen, Swiss franc and gold—the assets that are likely to go up should things get rough. If a fall is all that is left, it matters that you have something to cushion it.

 

 

This article appeared in the Finance and economics section of the print edition under the headline “How the mighty fall”

The slow-burning effects of Europe’s new data rules

Latin America

Few expected an overnight sensation. Still, January 13th 2018 was supposed to mark a big step towards exposing the European Union’s banking systems to digital competition. The eu’s revised payment services directive (psd2) came into effect; so did a British variant, Open Banking, the fruit of an investigation by the national competition watchdog. A year on, there is little sign of a stampede to switch banks. Yet progress is quietly being made.

In essence, the new rules seek to ensure that digital technology sharpens competition, by loosening banks’ grip on customers’ financial data, but without compromising security. They allow third parties, whether tech firms or other banks, to gather information from several accounts—with customers’ permission—in one place, so that people can manage their finances better. They also make it easier for third-party firms to pay online merchants directly from customers’ accounts.

Open Banking is obligatory only for Britain’s nine biggest banks, although others have signed up. Not all of these were ready at the start. “For the past 200 years banks have focused on keeping customer data and not letting anyone else get at it,” says Emmet Rennick of Oliver Wyman, a consulting firm. “In the past year or two they’ve been told, ‘That’s not the game’. But they have improved their act. Some are rolling out their own aggregation apps. The average response time of banks’ apis—the software which gives access to the permitted data—to queries from third parties was halved between July and November.

Even so, Jaidev Janardana, chief executive of Zopa, a British online lender, says that the biggest improvement would be a slicker connection between Zopa’s smartphone app and those of would-be borrowers’ banks. (Applicants used to have to send pdfs of bank statements to confirm their incomes; now Zopa can look through banks’ apis.) Only half the applicants who reach this stage complete it: at banks with the clunkiest apps, a mere 15-20% do.

How banks’ apis will function elsewhere in Europe is also a thorny question. Until that is answered, “important parts of the political and regulatory landscape will remain unclear,” says Daniel Kjellen of Tink, a Swedish account aggregator. Last year the European Banking Authority, a regulator, drew up technical standards, due to come into force in September. Banks are supposed to have apis in place well before then, so that third parties can test them and regulators approve them.

Financial-technology firms worry, for example, that banks will redirect customers to their own apps to authorise the use of data. This could make the process cumbersome and put people off new services. Another concern is that standards may proliferate, raising third parties’ costs and doing little to unify Europe’s banking markets. The Berlin Group, which involves dozens of banks and financial firms, has published a common framework. Some regulators are also promoting national standards.

An open question is how much appetite Europeans have for more open banking. People are notoriously loth to abandon their banks. Yet there are signs of latent demand: Yolt, an aggregator owned by ing, a Dutch bank, already boasts more than 500,000 British users; online banks are making a splash. In 2019 banks and upstarts alike may get closer to an answer.

 

 

This article appeared in the Finance and economics section of the print edition under the headline “Open plan”

Macri spoke after hosting the summit of the Group of 20 that ended on Saturday with the agreement of all the leaders regarding the final declaration

Latin America

President Mauricio Macri said that Argentina is on the right track to forge a strong rebound next year after overcoming a financial crisis in 2018.

“Argentina is in a much better situation than 12 months ago,” Macri told Bloomberg TV in an interview on Monday in Buenos Aires.

“We have significantly reduced our deficit, next year we will balance the primary budget and we have already financed all our needs through the International Monetary Fund program, which marks a great, big difference,” he said.

Macri spoke after hosting the summit of the Group of 20 that concluded on Saturday with the agreement of all the leaders regarding the final declaration, unlike the G-7 meeting in June, in which the president of The United States, Donald Trump, withdrew its support.

There were no violent protests in the Argentine capital, which contrasted with the incidents recorded in last year’s G20 meeting in Hamburg, Germany, and the US. and China declared a temporary truce to their trade war.

More than just a host, the Argentine leader also held a marathon of bilateral meetings with leaders such as Vladimir Putin, Emmanuel Macron, Trump, Xi Jinping and Narendra Modi.

Elected in 2015, this year has been possibly the most difficult of Macri. A monetary crisis led the country into a recession and forced the head of state to seek help from the IMF, which granted the nation a record credit line of US $ 56 billion. A severe drought, massive sales in the global market, zigzagging policies and communication errors triggered the fall of the peso, which reaches 49 percent this year, the most pronounced of the emerging markets.

Possibilities for reelection
The economic slowdown puts obstacles in Macri’s path towards reelection next year. The approval of his government is at its lowest level since he took office and consumer confidence fell to its lowest point in 16 years in November.

After his government began this year with an inflationary target of 15 percent, prices are expected to rise 47% in December with respect to the same month of 2017, warns Bloomberg.

Thinking about the October elections, the president promised to maintain simplicity: “Continue telling the truth, continue collaborating with my citizens and showing them that this is the only way. This G20 helped a lot, because all the leaders who visited us at the summit and at the 17 bilateral meetings we had agreed that we are making the right reforms. “

Ecuador anuncia salida del Alba y critica crisis venezolana

Economics | Latin America | Politics

Ecuador anunció este jueves su salida de la Alianza Bolivariana para los Pueblos de Nuestra América (ALBA) en respuesta a la crisis humanitaria en Venezuela, un país del que progresivamente se ha ido distanciando desde que Lenín Moreno llegó a la Presidencia.

“Ecuador no continuará su participación dentro de la ALBA”, anunció hoy el ministro de Exteriores, José Valencia, en una comparecencia en la que explicó que con ello su país quiere “reforzar” la búsqueda de una solución al problema político en ese país y al masivo éxodo de venezolanos.

La decisión fue anunciada en un encuentro de varios ministros ecuatorianos con medios de comunicación en el Palacio de Carondelet, sede de la Presidencia, donde se abordaba el problema del masivo flujo de venezolanos que han llegado al país desde comienzos de año.

Valencia destacó que se trata de un problema que no puede “ser encarado por un país individualmente”, sino que exige “una respuesta de todas las naciones de la región”, y que la salida de Ecuador de la ALBA lo que trata precisamente es de impulsar esa solución.

“La salida de ciudadanos venezolanos de su país es consecuencia de la crisis económica y política de Venezuela. Las repercusiones son regionales, sin embargo, Ecuador será siempre solidario”, advirtió el jefe de la diplomacia ecuatoriana.

Pero calificó de “inhumana” la actuación del Gobierno de Venezuela por permitir que millones de personas salgan del país como fruto de una crisis política, económica y social, y expuso la notoria frustración de su país “por la falta de voluntad política, en primer lugar, del Gobierno de Venezuela para abrir las puertas a una solución democrática”.

Una crítica hacia Venezuela que ha ido subiendo de tono en los últimos meses, particularmente desde que en junio dejara la cancillería la ministra María Fernanda Espinosa, del ala más izquierdista del Ejecutivo.

Bajo el nuevo canciller, el Gobierno de Moreno parece tomar nuevos rumbos en política exterior, lejos de los de su predecesor, Rafael Correa.

Aún así, Valencia explicó que Ecuador mantiene “una posición de principios” y que esta no se alinea con los de “ningún grupo en particular en la propuesta de que el problema de los venezolanos sea resuelto entre ellos, en el marco democrático”.

También aseguró que la salida de Ecuador de la ALBA no significa la intención de incorporarse a ninguna otra organización de integración regional.

La ALBA nació en 2004 como un mecanismo para la cooperación de los países de América Latina y el Caribe basado en la solidaridad y en la complementariedad de las economías nacionales, en una alternativa al Área de Libre Comercio para las Américas (ALCA) impulsada en su momento por Estados Unidos.

El ministro indicó en ese sentido que con la decisión de abandonar el bloque lo que se busca es “ratificar la independencia” de su país en “su accionar general en la política regional, un accionar marcado en principios”.

Según datos difundidos por la Alto Comisionado de las Naciones Unidas para los Refugiados (Acnur) y la Organización Internacional para las Migraciones (OIM), 2,3 millones de venezolanos están viviendo fuera de su país, de los que más de 1,6 millones lo han abandonado desde el año 2015.

“El 90 % se ha dirigido a países suramericanos”, según una nota de prensa.

El jefe de la diplomacia ecuatoriana dijo que se trata del “mayor éxodo de personas en la historia reciente de América Latina” y recordó la iniciativa de su país de convocar a una reunión técnica regional los días 17 y 18 de septiembre en Quito.

Ello dentro de la creencia, según el ministro, de que “solo una estabilidad democrática (en Venezuela) producirá estabilidad económica que evite la continuación del éxodo de sus ciudadanos”.

Y aclaró, al explicar la posición de su país, que Ecuador debe dar una respuesta humanitaria y cabal a una situación que es “emergente e inédita”.

En cuanto a la medida de solicitar pasaporte a ciudadanos venezolanos desde el pasado 18 de agosto, acotó que tras una reunión con el viceministro de Exteriores venezolano para América Latina y el Caribe, Alexander Yánez, consideraron necesario la provisión de documentos de viaje.

Valencia destacó que la acción de pedir el pasaporte fue comunicada de antemano a Acnur y a la ONU, con el fin de que se pueda verificar la identidad de las personas.

En la misma comparecencia, el ministro del Interior, Mauro Toscanini, explicó que “se ha reforzado el control migratorio” en los pasos de “Rumichaca, Huaquillas y Mascarilla”.

“Hay 200 policías más en Rumichaca y apoyo policial a los buses que se movilizan con migrantes y siete puntos policiales a lo largo del corredor humanitario”, destacó.

Ecuador announces Alba exit and criticizes Venezuelan crisis

Economics | Latin America | Politics

Ecuador announced on Thursday its exit from the Bolivarian Alliance for the Peoples of Our America (ALBA) in response to the humanitarian crisis in Venezuela, a country from which progressively has been distancing since Lenin Moreno came to the Presidency.

“Ecuador will not continue its participation in the ALBA,” Foreign Minister Jose Valencia announced today in an appearance in which he explained that his country wants to “reinforce” the search for a solution to the political problem in that country and to the massive exodus of Venezuelans.

The decision was announced at a meeting of several Ecuadorian ministers with media at the Carondelet Palace, headquarters of the Presidency, which addressed the problem of the massive flow of Venezuelans who have arrived in the country since the beginning of the year.

Valencia stressed that it is a problem that can not be “addressed by a country individually”, but requires “a response from all the nations of the region,” and that Ecuador’s exit from ALBA is precisely what it is about. boost that solution.

“The departure of Venezuelan citizens from their country is the result of Venezuela’s economic and political crisis. The repercussions are regional, however, Ecuador will always be in solidarity, “warned the head of Ecuadorian diplomacy.

But he described as “inhumane” the action of the Venezuelan Government for allowing millions of people to leave the country as a result of a political, economic and social crisis, and exposed the notorious frustration of their country “for the lack of political will, first place, of the Government of Venezuela to open the doors to a democratic solution “.

A criticism of Venezuela that has been rising in recent months, particularly since Minister of Foreign Affairs María Fernanda Espinosa left the Foreign Ministry in June, from the most left wing of the Executive.

Under the new chancellor, Moreno’s government seems to take new directions in foreign policy, far from those of its predecessor, Rafael Correa.

Even so, Valencia explained that Ecuador maintains “a principled position” and that it does not align with those of “no particular group in the proposal that the problem of Venezuelans be solved among them, in the democratic framework.”

He also assured that the departure of Ecuador from the ALBA does not mean the intention to join any other regional integration organization.

ALBA was created in 2004 as a mechanism for the cooperation of the countries of Latin America and the Caribbean based on solidarity and complementarity of national economies, in an alternative to the Free Trade Area for the Americas (FTAA) promoted in its moment for the United States.

The minister indicated in that sense that with the decision to leave the bloc, what is being sought is to “ratify the independence” of his country in “its general action in regional politics, an action marked in principles”.

According to data released by the United Nations High Commissioner for Refugees (UNHCR) and the International Organization for Migration (IOM), 2.3 million Venezuelans are living outside their country, of which more than 1.6 million they have abandoned it since 2015.

“90% has gone to South American countries,” according to a press release.

The head of Ecuadorian diplomacy said that it is the “greatest exodus of people in the recent history of Latin America” and recalled the initiative of his country to convene a regional technical meeting on September 17 and 18 in Quito.

This is within the belief, according to the minister, that “only a democratic stability (in Venezuela) will produce economic stability that prevents the continuation of the exodus of its citizens.”

And he clarified, explaining the position of his country, that Ecuador must give a humanitarian and full response to a situation that is “emerging and unprecedented.”

As for the measure of requesting a passport to Venezuelan citizens since August 18, he said that after a meeting with the Venezuelan deputy foreign minister for Latin America and the Caribbean, Alexander Yánez, they considered it necessary to provide travel documents.

Valencia stressed that the action of requesting the passport was communicated in advance to UNHCR and the UN, in order to verify the identity of the persons.

In the same appearance, the Minister of the Interior, Mauro Toscanini, explained that “immigration control has been strengthened” in the steps of “Rumichaca, Huaquillas and Mascarilla”.

“There are 200 more policemen in Rumichaca and police support for buses that move with migrants and seven police points along the humanitarian corridor,” he said.

Why Amazon has not expanded in the large economies of Latin America as in other regions of the world

Economics | Latin America | Politics

If it is so huge in other regions of the world, why has it not expanded in the same way in the largest markets in Latin America?

The largest e-commerce company in the world is showing signs of plans to expand in the region.

With an emerging middle class with more purchasing power to satisfy their consumption needs, the Latin American market seems to be in Amazon’s sights.

But it is not easy.

One of the difficulties that the giant of Jeff Bezos has had to face is the presence of major competitors, such as the Argentine firm Mercado Libre, which has established itself as the leader in online sales in Latin America.

There are also other rivals such as B2W or Falabella that have a long experience in the sector and that have the logistical networks that allow the storage and distribution of the products sold on the web.

These and other great rivals “have learned to face challenges such as poor infrastructure that makes the delivery of products difficult, or the low percentage of bank accounts and credit cards,” tells BBC Mundo Fabiola Moura, Bloomberg analyst at Sao Paulo.

There is also the case of companies that traditionally made offline sales, such as Magazine Luiza in Brazil, which took a turn and made large technological investments, earning a significant portion of the electronic sales market.

The protectionist barriers
Big companies like Amazon or Alibaba have their eyes on Latin America, because there is a large growth space for electronic commerce, analysts say.

But breaking the barriers of entry is not easy.

“Amazon has had to deal with a lot of protectionism in markets like Brazil,” says Sucharita Kodali, principal analyst and e-commerce expert at consultancy Forrester, in conversation with BBC Mundo.

That would explain why the giant focused so much time on selling products as its Kindle e-reader with no hurry to expand into the other categories, as it has done elsewhere.

“The challenge for Amazon is that those markets are still mainly led by retail stores,” he adds.

The Argentine company that you have possibly used and that has just been sown in the 100 largest companies of the Nasdaq
How did Amazon so that its first supermarket, Amazon Go, has no ATMs or rows
And on the other hand, the idea that consumers can buy online all the products of all markets, is not that simple either.

“There are import restrictions and price differences,” explains Kodali.

Consulted by BBC World, Amazon said it did not have a spokesperson for Latin America or anyone with sufficient knowledge to deal with the matter.

The challenge of Brazil
With a population of more than 200 million, Brazil is a key market in its expansion strategy.

He came to the country in 2012 without causing much noise with the sale of electronic books and then with streaming movies. But six years after entering the largest economy in Latin America, Amazon has begun to diversify its offer.

Mercado Libre, the Argentine company that you have possibly used and that has just sneaked into the 100 largest companies of the Nasdaq

Economics | Latin America | Politics

If you live in Latin America and have ever wanted to sell or buy something online, you have probably used Mercado Libre.

The electronic commerce portal was created in 1999 by the Argentine Marcos Galperíny and his then partner Hernán Kazah.

It was a time in which doing business online still generated distrust and those who dared to try it took a thousand and one precautions when making the exchange.

But EBay did not operate then in Latin America.

So local alternatives such as Mercado Libre, which allow businesses and individuals to market items in exchange for a commission, had free land.

Many did not survive the dot-com crisis or they did not get the volume of users needed to achieve profitability.

Mercado Libre, on the other hand, has become the most valued company in Argentina with a market value of US $ 12,400 million.

A figure even higher than the US $ 10,000 of the YPF oil company, considered the largest company in the country.

This week, the portal marked a new milestone by entering the Nasdaq 100, the US stock index that brings together the most important companies in the industry sector, whether local or international.

An ally of EBay
Galperín, director of Mercado Libre, was an employee of YPF when he decided to go to the United States to take a master’s degree in business administration at the business school of Stanford University.

Immersed in the technological culture that surrounds this institution due to its proximity to Silicon Valley, he began working on the creation of Mercado Libre with Kazah before finishing his studies.

Yahoo: Why is it going so bad that it was one of the internet giants?
After obtaining the funds, they founded the company in Argentina.

It spread so rapidly to other countries in Latin America that EBay opted to join it instead of competing, buying shares in 2001, only two years after its birth.

Europe demands reciprocity from Mercosur to negotiate a free trade agreement

Latin America

Negotiations for a treaty between Mercosur and the European Union (EU) are “blocked,” said French Economy Minister Bruno Le Maire. In addition to the meeting of G20 ministers in Buenos Aires, Le Maire stressed that South American farmers should be subjected to the same demands as their European peers.

So far, both European and Mercosur emissaries spoke of progress in these discussions that are currently taking place in Paraguay, the country that presides over the bloc that is completed by Argentina, Brazil and Uruguay.

“The negotiation with Mercosur is blocked for different reasons,” he said. “The decision of the South American countries is expected but for the moment it is blocked,” the minister said at a press conference in English.

“We believe in a free trade based on total reciprocity, which means that the rules applicable in France or in Europe, should be in Argentina or Brazil. If the rules are not equal, we must find a compensatory measure, “he said.

Le Maire, former Minister of Agriculture of former President Nicolas Sarkozy, said: “one can not explain to a producer that he must comply with very restrictive rules in France, in Germany, in Spain or in Italy if the same product is not made from the the same way in another continent. ”

Argentina gave a different version of the negotiations. Argentine Economy Minister Nicolás Dujovne estimated that an agreement between the parties can be reached before the end of the first half of the year.

The discussions between both blocks began almost 20 years ago. Europeans fear that their market will be invaded with agricultural products and South Americans that their industries will be harmed by goods manufactured in Europe.

Latin America will grow 2.6% on average in 2018/2020, according to the IDB

Latin America

Latin America and the Caribbean will grow 2.6% on average between 2018 and 2020, below global growth, due to low levels of investment and productivity, the Inter-American Development Bank (IDB) said today when presenting its macroeconomic report.

Although the Latin American region grows again after two years of recession, it does so at a much lower pace than other regions, such as Asia and emerging Europe, which project growth of 6.5% and 3.7%, respectively in that same period.

The Latin American expansion, however, is unequal: it is expected that the Southern Cone (excluding Brazil) will present a growth rate of 2.9% in 2018-2020, that Mexico will grow 2.7% in that triennium; and that Brazil does it 2%.

“The good news is that most of the region has grown again,” said José Juan Ruiz, chief economist of the IDB, when he presented the first part of the report in the framework of the annual assembly of the organization that is being held these days. in Mendoza (Argentina).

Ruiz pointed out that “growth is not fast enough to satisfy the desires of the growing middle class” and stressed that “the biggest challenge is to increase the levels and efficiency of investments so that the region becomes more productive, grows in a faster and more stable and safeguard the region from external shocks. ”

Hundreds of economic and political leaders from the region attend the annual meeting of the Pan-American financial institution, which will last until this Sunday, March 25.

The National Electoral Council (CNE) Approves Electoral Registry for Elections in Venezuela

Latin America
More than 20 million Venezuelans are invited to participate on May 20th to elect the President of the Republic.

The National Electoral Council (CNE) of Venezuela approved on Thursday the final Electoral Registry (RE) for the upcoming presidential,  legislative and municipal elections on May 20th.

Through a press release, the commission reports that some 20,526,978 citizens are called on to elect the president, while 18,919,364 will choose their representatives in the state legislative councils.

In addition, the commission clarified that the number of those summoned for these processes are different because, for the presidential election, all Venezuelans of legal age enrolled in the CNE are counted, even those who are abroad.

However, for legislative councils, people abroad and the inhabitants of the Capital District were excluded, due to the fact that they have a special administrative regime and added that foreigners with more than ten years of residence in the country will be able to vote next May 20th.

The cutoff for the Electoral Registry is based on voter data gathered until March 10, the date on which the registration process for new voters and the updating of data closed.

This data was audited by the different organizations with candidates for this new election day.