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Expected inflation pop from Trump win pushes dollar to best week in a year

Posted in Articles by dionrabouin on November 21, 2016

The dollar rose to its highest in nine months against a basket of major currencies on Friday and posted its best week in a year as investors packed on bets that the administration of President-elect Donald Trump would pump up U.S. inflation.

Investors expect Trump’s proposals to deport illegal immigrants, renegotiate free-trade deals and unleash large fiscal stimulus measures will boost U.S. inflation.

The dollar also extended gains against the Chinese yuan and Mexican peso to historic levels on expectations that emerging markets will suffer most if Trump turns his protectionist rhetoric into action.

“Everybody loves U.S. assets, so hence why the emerging markets currencies and equities and obviously their own bonds are all under pressure,” said Dean Popplewell, chief currency strategist at Oanda in Toronto.

“We continue to see the squeeze in emerging markets. Certainly people will want to move their capital, stateside at the moment, and with higher rates and reflation and inflation U.S. Treasuries will eventually be coveted,” he added.

China fixed the yuan another 0.2 percent lower at 6.8120 per dollar and less tightly controlled offshore rates reached as high as 6.85 yuan CNH=, pointing to expectations of more losses. It was the lowest for the yuan against the dollar in six years.

Currencies associated with the Trans Pacific Partnership were lower across the board amid news on Friday that Trump’s election had effectively made the trade deal with Asian and Latin American nations a nonstarter for the U.S. Congress.

The Mexican peso MXN=D4 sank 3 percent to a record low of 21.395 per dollar and the Canadian dollar fell to its lowest since February.

In South America, Peru’s sol fell to its lowest since March against the dollar with the Chilean peso falling more than 1 percent.

The New Zealand NZD= and Australian dollars AUD= both dipped by around 1 percent against the dollar.

In Asia, the Malaysian ringgit MYR= fell to its lowest since January and the Singapore dollar SGD=hitting its lowest since February.

The euro fell to its lowest against the dollar since March, touching $1.0836 EUR=.

The dollar erased most of its losses on the day against the Japanese yen JPY= to trade little changed from late Thursday’s levels. It gained 3.5 percent versus the yen for the week.

The dollar index .DXY, which tracks the dollar against six rival world currencies, rose more than 2 percent this week, its best one-week gain since November 2015.

Argentina’s tech sector on the cusp of a boom, but obstacles remain

Posted in Features by dionrabouin on November 21, 2016

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Mauricio Macri’s presidential election victory in November was a clear signal to Diego Saez Gil that it was time to move back to Argentina and take his growing “connected luggage” startup with him.

By the time Macri took office the following month, Saez Gil was already staffing an office for his Bluesmart baggage company in Buenos Aires’ Palermo neighborhood, on the way to hiring 21 software developers, designers and customer support personnel – more than double the staff at its headquarters in New York.

“We started thinking about the talent we needed to scale the company, and at the same time we saw the new government,” Saez Gil said in a telephone interview. “That was the catalyst to say Argentina seems a really good place to go.”

As he looks to grow his company, which produces luggage that automatically locks and can be tracked via a smart-phone app, Saez Gil said his home country offers the best mix of startup-friendly cost structure and a highly educated population with engineering skills.

And when Macri removed long-standing currency controls, eased reserve and deposit requirements for overseas investors and cut a deal with its foreign creditors, effectively reopening international debt markets, Saez Gil was convinced Argentina would no longer scare off potential investors.

Like other tech business leaders interviewed by Reuters, he was also attracted by the potential of the president’s now-passed “entrepreneurs’ law” allowing businesses to more easily be incorporated.

Under pressure to turn around a sagging economy long reliant on commodities like beef and soybeans, Macri is hoping a nascent tech sector can provide a fresh source of growth.

Raising investment in the tech sector to 1.5 percent of gross domestic product is one of his government’s key goals as it looks to boost production and employment.

While pleased with the new government’s first steps, Saez Gil and other Argentine business owners such as Martin Migoya, co-founder and chief technology officer of services provider Globant, say Argentina still lacks the kind of market liquidity and depth needed to list their shares there.

Additionally, the country’s size presents a problem.

“Argentina is a good market, but it’s not big enough to think about a multinational company just serving Argentina,” Migoya told Reuters in a phone interview. “So by definition, entrepreneurs in Argentina need to think in a global way. That’s not very common and we need to foster that.”

If Bluesmart eventually goes public, as Saez Gil hopes, the Nasdaq is a more likely venue than Buenos Aires’ stock market. Local Argentine investors have a better handle on businesses like mining, agribusiness and utilities than tech, he said.

That limited awareness is just one of several obstacles to tech expansion in Argentina. Business owners say that even under Macri’s more business-friendly administration there are still many challenges that include stifling taxes and difficulty obtaining financing from banks.

NEAR-SHORING

Nevertheless, in a development that could help more tech startups, a growing number of multinationals have in recent years outsourced thousands of positions to Latin America’s third largest economy.

Companies such as JPMorgan Chase & Co, Citigroup Inc, Accenture and Chevron Corp have shifted research, accounting and call center jobs in English and Spanish to Argentina.

The moves, most of which predate Macri’s election win, take advantage of Argentina’s relative abundance of bilingual college graduates. They have made it a hub for “near-shoring,” in which companies outsource to Latin America rather than to distant locations like India and the Philippines.

Chevron, for example, has for about a decade employed staffers in Argentina who provide accounting services and IT support for many of its affiliates in Latin America, the United States and the United Kingdom.

JPMorgan last year opened its first Latin America-based global support hub in Argentina, months before Macri’s election.

The bank, which previously had only an investment banking operation there with around 140 employees, now has about 700 with some 100 in roles like software development, systems analysis and securities processing, the bank’s senior country officer, Facundo Gomez Minujin, told Reuters.

The outsourcing moves could foster a virtuous cycle creating “a large body of technically savvy and technically trained people,” said Sramana Mitra, founder and CEO of One Million by One Million, a global support network that includes Hernan Kazah, co-founder of Argentine online auction house MercadoLibre Inc.

Gomez Minujin said JPMorgan plans to hire nearly 400 more tech workers in the next year in similar roles to the initial 100, many of whom will serve U.S. operations and clients.

Overall, Argentina’s outsourcing, or “near-shoring” sector boasts 105,000-115,000 full-time equivalent positions (FTEs) in global services, according to industry tracker Everest Group.

That makes it the leader in South America and only about 20,000 FTEs behind Latin America tech services leader Mexico.

“Despite macroeconomic instability in recent years, Argentina continues to witness new center set-up activity,” said Salil Dani, Everest Group’s vice president of global sourcing.

In the last 24 months, 12 new outsourcing service providers have opened there, matching Mexico and more than doubling the pace in much larger Brazil, Everest data shows, although still well behind India.

They are attracted by Argentina’s time zone and cheap currency, down more than 75 percent against the dollar since 2011. But many also rave about its workers’ English and engineering skills.

“Argentina is the best place in Latin America for setting up shop,” said Dileepan Siva, chief revenue officer at digital commerce software provider Moovweb who has a long history working with tech companies like eBay Inc and Twitter Inc.

EMBRACING TECH

Mentoring and networking groups such as Endeavor, started in Buenos Aires in 1997 by two Americans, have helped connect startups like Bluesmart’s Saez Gil with those who own multinational companies, like MercadoLibre chief executive Marcos Galperin.

Tech champions MercadoLibre and Globant as well as community listings firm OLX and travel site Despegar – all valued at more than $1 billion – were the stars of the only session Macri led at the recent Argentina Business and Investment Forum organized by his government in Buenos Aires.

Macri’s embrace of the tech sector is not new. As mayor of Buenos Aires he created a technology district and awarded companies that opened or moved there a 10-year tax break.

But there have been no targeted steps to bolster the sector since his election, and the government’s most recent budget aims to cut funding for the Ministry of Science, Technology and Productive Innovation by more than 30 percent.

“We’re not expecting the effort in technology from Argentina to come entirely from the public sector,” Finance Minister Alfonso Prat-Gay recently told Reuters in New York.

“It’s about deregulation, opening up the conditions for local and foreign players to be involved. So I think it’s wrong to just look at the budget and conclude that our priorities are not there.”

Brazil’s new president promises investors political stability

Posted in Articles by dionrabouin on November 21, 2016

Brazilian President Michel Temer on Wednesday promised political stability for foreign investors to put their money in a country weathering the impeachment of his predecessor and the worst recession in generations.

Speaking for the first time to investors in New York, Temer said he was confident he will have enough backing in Congress to pass unpopular fiscal reforms needed to plug a ballooning budget deficit and regain the confidence of markets in the once-booming economy.

Temer, formally sworn in three weeks ago, has managed to approve minor bills in Congress after months of political turmoil that led to the impeachment of his leftist predecessor Dilma Rousseff.

However, the 75-year-old constitutional scholar is already facing divisions within his widely diverse alliance in Congress with some lawmakers promising to water down the fiscal reforms.

The head of his economic team, Finance Minister Henrique Meirelles, told investors at the same event that he saw “extremely high chances” of approval for a key proposal to cap public expenditures.

Meirelles said a controversial reform to reduce generous pension benefits and set a minimum age of retirement will most likely be approved next year.

The proposed reforms and management changes in key state-run enterprises are shoring up confidence in Brazil that is on track for a gradual recovery after two years of recession, Meirelles said.

“Our actions aim to reduce the debt burden and increase productivity,” Meirelles said.

He added that the government could consider selling debt abroad again this year if market continues remain favorable.

Temer, who was in New York to address the U.N. General Assembly, on Tuesday assured world leaders at the gathering that the dismissal of Rousseff was fully constitutional. However, delegations of some leftist governments walked out of the session to express their objections about his legitimacy.

(Additional reporting and writing by Alonso Soto; Editing by Andrew Hay and Chizu Nomiyama)

Moody’s raises outlook for emerging markets in 2016, 2017

Posted in Articles by dionrabouin on November 21, 2016

Moody’s Investors Service revised its outlook on the world’s largest emerging market economies upward for 2016 and 2017, the ratings agency announced on Wednesday, pegging growth for G20 emerging markets at 4.4 percent this year and 5 percent for 2017.

Analysts at Moody’s said in a research note they expect growth in emerging markets to stabilize overall, but forecast increased growth for some countries and a turn lower for others.

Moody’s revised upwards its macro outlook for Brazil, Russia and China. Turkey and South Africa were seen growing less than previously expected.

“We’re seeing a certain amount of stabilization … capital flows seem to be back in a fairly strong way and across regions,” said Madhavi Bokil, Moody’s vice president and senior analyst and one of the authors of the report. “Relative to earlier in the year, financial market volatility has come down, and in the case of emerging markets in general we’re seeing some improvement.”

Moody’s expects Brazil to return to positive growth in 2017 after contracting 3.8 percent in 2015 and as much as 4 percent this year. Bokil attributed the improvement to an increase in business and investor confidence in Brazil since interim President Michel Temer took office earlier this year.

Russia, whose economy shrank 3.7 percent in 2015 and is expected to contract again this year, is seen growing up to 2 percent in 2017 thanks to stronger oil prices and industrial production, Moody’s report said.

China’s GDP outlook was raised to 6.6 percent in 2016 and 6.3 percent in 2017.

The upward revisions stem largely from economic stabilization in China as well as a recovery in commodity prices and the return of capital flows to emerging markets, the report said. The agency also noted the slower pace of the U.S. Federal Reserve’s interest rate tightening cycle in 2016.

“Financial markets that were quite volatile earlier in the year have settled and some of the expectations of Fed rate tightening have been pushed back,” Bokil said. “That’s allowed for some of the external pressures to come off.”

Moody’s did note in its report, however, that it expects the Fed to resume its tightening cycle at the end of the year.

The most immediate downside risk to the global economic outlook, Moody’s said, was the U.S. presidential election in November.

Colombia peace pact won’t boost economy in near term – investors

Posted in Articles, Features by dionrabouin on November 21, 2016

Colombia’s historic peace agreement with FARC rebels, to be unveiled on Wednesday after almost four years of negotiations, is not likely to give the country’s struggling economy an immediate boost, investors said, as sluggish commodities prices remain the most pressing issue.

Any benefit to the agreement, set to be unveiled late on Wednesday, is already reflected in the country’s markets and economy, investors said, after the government and rebels reached a ceasefire deal in June, setting the stage for a final pact.

The agreement will end more than 50 years of combat between the Revolutionary Armed Forces of Colombia (FARC) and the country’s government. Colombian voters still need to approve the agreement in a referendum expected to take place in the next couple of months.

“It’s good news in the abstract, but we have to see whether the referendum will be approved … and there are other issues in terms of fiscal reform that need to be addressed by the government,” said Jim Barrineau, co-head of emerging markets debt at Schroders Investment Management.

Wednesday’s accord would see FARC rebels reintegrated into civil society and given the opportunity to participate in politics.

“While there is little doubt that the deal is a net positive for the economy, the more optimistic estimates of its impact on the economy in the near term are unlikely to be borne out,” said Adam Collins, Latin America economist at Capital Economics in a research note.

“The security situation in Colombia has been steadily improving for more than a decade,” he said. “As such, most of the economic benefits of peace in terms of increased investment and tourism have already been felt.”

Colombia’s economy grew 4.4 percent in 2014 before slowing to 3.1 percent GDP growth in 2015, pressured by declining oil revenues.

How Colombia navigates its fiscal deficit and rising inflation is now more pressing than the long-term prospect of peace in the country, investors said.

Assuming the referendum on the deal passes, Colombian President Juan Manuel Santos is expected to seek approval for a package of tax increases aimed at offsetting falling oil revenues, Eurasia Group said in a research note.

Investors also cautioned that the agreement could be an economic hindrance as re-integrating rebels could add to Colombia’s budget deficit, which might hamper reform efforts and cause a downgrade in the country’s credit rating.

The Colombian peso fell 0.85 percent against the U.S. dollar on Wednesday. The country’s IGBC stock exchange, which has gained 18 percent so far this year, rose 0.7 percent.

The price of oil and gold, two of Colombia’s key exports, fell 1 percent and around 2 percent respectively on Wednesday.