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April's inflation was the highest figure for the year but we believe it is a transitory increase and that at the end of the year it will return to the Bank of the Republic's target of 3% per year. Inflation recently published for April surprised the rise and stood at 0.5% per month above expectations.
In what was a highly volatile week for financial markets, marred by the tit-for-tat US China trade dispute, equity volatility swung sharply.
The dynamics of Global Investment Funds flows in 1Q19 can be characterized by a widening bond-equity divergence, and a visible moderation in inflows to EMs. Looking ahead, we expect EM outflows to continue at a moderate pace until global volatility eases. In a risk scenario, EMs to face more intense and persistent outflows.
Weekly update with most relevant news on financial regulation:
The first budget execution data for 2019 slightly worsens last year's dynamics. In an environment of extended budget and policy uncertainty, the economic cycle will reduce the deficit, although the current fiscal targets will be missed.
As widely expected, Banxico left the monetary policy rate unchanged at 8.25%. The decision was unanimous, as we anticipated. The wording and tone of the statement remained hawkish and was little changed from the previous one (March 28). As we anticipated, the hawkish tone continues to signal a cautious approach.
Equity markets bounced back trimming some loses inflicted by the renewed trade tensions, while volatility eased as Trump announced a six month extension of the deadline for imposing auto tariffs on Europe and Japan. Expectation of central banks support also contributed to the positive market tone today.
A batch of April economic indicators are announced today, together with previously released trade and credit data, suggesting that the risk of growth deceleration looms large even before the escalation of US-China trade war in early May.