Sunrise Over El Dorado : Alianza : December 6th 2018

DAILY THOUGHT : Whilst the tax reform inches through Congress being picked away at bit by bit as it tries to increase revenues in order to pay the bills in 2019 on the other side of the balance sheet there is a problem that won't go away - the education sector will be back on the streets today demanding more funding for 2019 and beyond. The battle lines have been joined and whilst we have in previous years seen isolated protests this feel very different and threatens to dog the Duque Presidency until such time as the money is provided.

MARKETS

The COLCAP got back to winning ways with an increase of 0.62% to 1408.41pts - again the MoC orders were skewed to the buyside and added 0.39% during the past 5 minutes - volume on the day due to the US holiday was a minuscule USD13mn with GRUPOSURA (USD 2mn) & ECOPETROL (USD 2mn) registering the biggest volume. In terms of movement PFGRUPOARGOS (+2.97%) , TERPEL (+2.23%) and ECOPETROL (+1.90%) were the top performers whilst ELCONDOR (-3.85%) ,CNEC (-3.66%) and PFCEMARGOS (-2.83%) took the day off. The Peso had a decent day putting on 0.84% to close at 3161 and traded a healthy USD1.29bn despite the fact that the NYSE was closed.

The bond market was weaker having surprised on Wednesday with a solid day whilst the rest of the markets fell apart - we saw yields rise along the curve with the benchmark 2024 rising 3.02bps to 6.32% and the 2032 closed at 7.34% and increase of 3bps.

TAX REFORM

The economic commissions of the Senate and Congress have done their work and have approved the tax reform - there were some minor adjustments however the headline item in terms of VAT, beer and sugary soda drinks, were left in and will contribute around USD300mn. We are now 50% through the approval process and we now move on the main houses of both the Senate and Congress - FinMin Carrasquilla was photographed beaming afterwards but we are miles away from the numbers he needed to balance the books and he must be hoping that they are no further surprises in store.

NOVEMBER INFLATION

A more benign reading than expected with a monthly reading of 0.12% which was below both concensus (0.15%) & our own 0.20% which lead us to a 12m rate of 3.27% verus the 3.35% we expected - food was once again the biggest differenciator coming in at 0.03% whilst we expected 0.10%, it contributed almost nothing to the monthly number. Housing was also below what we expected at 0.18% however it still contributed 0.06% of the 0.12% - the other area that had a heavy weighting was entertainment which rose 1.01% and accounted for 1/3 of the increase - beyond that a very calm situation. In terms of the 12m reading of 3.27% as we might expect Housing (1.22%) & Food (0.65%) account for much of the movement. At this point the economists are taking a look at the numbers but don't anticipate any change to our view that the Central Bank will increase interest rates by 1% by the end of 2019 - consensus is +50bps.