Sunrise Over El Dorado : Alianza : January 8th 2019

DAILY THOUGHT : Well the wise men from the east arrived this past weekend so now we can finally get 2019 underway and boy is there a mountain to organize because whilst the ELN declared a festive season ceasefire there was no such agreement when it came to politics, President Duque got mauled over his Founding Fathers comment, Venezuela is coming to the boil again, the tentacles of Odebrecht threaten to stretch further and socials leaders continue to be murdered at rate which would be considered unacceptable in any other respectable country. The ship feels rudderless and there is a crucial six months ahead in terms of budgeting and legislation if Colombia is to move away from the current choppy waters.

MARKETS

The COLCAP has made a bright start to 2019 and put on a further 0.61% this past Friday closing at 1356.75 - volume was also marginally better at USD15mn although 27% of that appeared in a closing auction that moved the index from negative to positive territory. In terms of performance we saw decent days from CNEC (+3.73%) , PFGRUPOARGOS (+3.48%) and GRUPOAVAL (+2.20%) whilst PFAVAL (-4.63%) ,BOGOTA (-1.68%) and CEMARGOS (-1.25%) all struggled.

The Peso in line with the rest of the region was considerably weaker and fell 1.58% to 3193, effectively eliminating all of the recent gains .

After a weak session on Thursday the bond market was a lot calmer with yields close to unchanged, the 2024 benchmark closed at 6.16% (-2bps) and the 2032 at 7.20% which was unchanged.

INFLATION

The final inflation data for 2018 is in and the 3.18% we closed out the year with was lower than the market likely expected for most of the year although still above the FinMin's original estimate of 3%, we at Alianza were looking for 3.29% which was above consensus. In terms of December we were once again below the market consensus of 0.34% at 0.30% - a higher reading than we have seen over recent months however the last month of the year has a tendency to do that - on this occasion we saw higher than average numbers from Entertainment (0.69%), Food (0.40%) & Transport (0.38%). The authorities should be happy with the 3.18% reading and it will leave plenty of room to leave rates at 4.25% for the time being however inflation is a double edged sword, it is good to have it under control however everyone will be hoping that it isn't a sign of a sluggish economy. As a base number moving into 2019 it is a good starting point however January's reading will be of extra interest due to the fact that the DANE for the first time in a decade have changed the format and the categories.