Risk-on sentiment continued to expand its grip of US financial markets on Wednesday, bringing better overall risk appetite to LATAM shores. External price-drivers were of the same variety as on Tuesday with regard to the ongoing EU sovereign/banking crisis. In the aftermath of the promises for bank recapitalization emanating from the Merkel/Sarkozy duo, EC President Jose Maria Barroso made additional calls for a faster implementation of the EFSF and bolstered the continental position of calling for coordinated effort to prop up bank capital in the EU. The US offered up minutes to the recent FOMC meeting, which confirmed that QE3 had been discussed as part of the menu of options available to the FED to implement, though proponents of such course were in the minority of committee members. Cuts to interest paid on banking reserves were also seen as possible destabilizing elements for the money market. LATAM saw another day of very visible signs of production slowing in the major economies of the region. This time around it corresponded to Mexico to take negative economic metrics on the chin. August industrial production declined by 1.1% m/m, scoring the largest such decline since August of 2009. Market expectations had been for a much smaller -.15% setback. Partially countering the effects of the dated IP figures, AMIA reported that auto production and exports were both up by over 14% y/y during the month of September in Mexico, implying that more recent production data will remain supported by this critical activity. ANTAD also provided another mildly positive piece of the Mexican economic puzzle for September as same-store sales climbed by 5.4%. The monthly BCCH poll of market participants indicated that rate cut expectations remain centered on December of this year, with projections pointing to a 25 bp decrease by this period, while another 25 bp trimming of rates would occur by the end of the 1Q of 2012. Futures prices for copper dated into 2012 climbed back to US$3.40 p/lb, placing additional fire under the recovery of the CLP, which moved higher by 2% and inside of the USD/CLP 500.00 boundary. A crashing USD versus Euro (Euro moved higher to 1.3786) also added to investor motivation to grab carry yield in LATAM. Approval of the FTA's with Colombia and Panama in US Congress, alongside the diving Dollar factor assisted the USD/COP in breaking the 1900 level to 1895, a gain of about 1% on the day. US equities continued to roll, with the S&P up by 1% despite a less than auspicious start to 3Q earnings season. This lead served to further propel LATAM equities higher, with the MERVAL experiencing a second consecutive day of over 4% gains. Sovereign debt also continued to accumulate positive intra-day returns, with compression of 17 bps resulting from +.75% gains. Argentina, a big loser on the way down, reemerged as a risk favorite, though the 2033 Discount bond had a very wide bid/offer range at the end of the day (73 / 74 ½), which represented a near 3 point gain on the buyers side.

An extended holiday weekend for bond markets in the US left LATAM debt markets with some catching up to do yesterday with regard to Monday's US-led market enchantment with the latest European promise to create a viable recapitalization plan for banks on the Continent by the end of the month. Hence, LATAM sovereign debt prices proceeded to gallop to stronger levels, with some again nearing historical tops, all amid a backdrop of rising US Treasury yields (10-year back to 2.15% and 30-year at 3.10%). Statements by troika officials reviewing Greece's financial ledger that more austerity would be needed in light of the budgetary misses achieved by this nation failed to derail more positive sentiment coming from Europe. Assurances that the pending EUR8B funding tranche would come in November despite the non-adherence

to the agreement on budgetary targets allowed for another sigh of relief from the markets. Slovakia became the first Euro-member state to make good on its political threats in voting down an expansion of the EFSF, which led to vote of no-confidence against the Radicova government. However, expectations were that a second try on gaining such approval would pass later this week, blunting possible negative effects on the EFSF approval framework. Brazil spearheaded the LATAM headlines thanks to a very negative read for retail sales in this nation during the month of August. With a -.4% decline m/m reported by IBGE, the actual number was far in excess of the -.1% market expectation, heavily adding to the view that a broader slowdown had commenced in this economy. Venezuela offered a new USDollar-denominated 2026 Global bond in the local markets, with the nominal amount reaching US$3B in order to supply hard currency to this venue. The issue was set to carry an 11.75% coupon, with price guidance set at 95%. Terms stated that 40% of the issue would be reserved for 'businesses belonging to the national private sector'. Panama reported a quickened pace of inflationary pressures, as prices rose by +.7% in September, bumping up annual inflation to 6.1%. Regional asset prices were mostly stronger. Brazil's longer-duration debt paper jumped higher. The 2034 Global bond closed at 146 bid, approaching historical Dollar highs. This gain totaled 2 ½ points on the day, which drew in spreads by 16 bps. A sideways Dollar versus Euro at 1.3630 still held plenty of Euro gains from Monday for LATAM to ingest. Both the CLP and the COP gained over 1% in responding to the Dollar decline, but both the BRL and the MXN entered a consolidation phase after stretching higher on Monday. The MERVAL was a big winner among the equity indices, climbing 4.5% in catching up to the perceived improvement in European sovereign risk.

Market attention zeroed in on European policymakers on Thursday, as the ECB and the BOE took center stage in announcing new policy measures. In the case of the BOE, more quantitative easing was announced, somewhat ahead of market anticipation, with the total authorized amount for asset purchases moving to GBP275B from the prior GBP200B. Simultaneously, ECB head Jean-Claude Trichet ensured that his last monetary policy conference as head of this entity didn't go unnoticed. Mr. Trichet announced that the scheme to purchase covered bonds in the EU would be reactivated in November, and span nearly 1-years time, with a new dedicated amount for this objective reaching EUR40B. Of at least equal importance, Mr. Trichet dictated that the ECB would offer banks unlimited financing for terms of 12-months and 13-months. The 12-month loan would be offered in October, while the 13-month variety would be placed during December. Regular ECB refinancing for European banks were also confirmed to continue until at least July of 2012. Aromas of widespread quantitative easing within the Eurozone, alongside the understanding that the ECB was attempting to open the financing spigots wide for the banking roster in Europe helped to further mend sentiment on risk in the US and across the pond. US markets were only offered a very slight setback for weekly jobless claims (401K versus 410K expectations) in the run-up to today's always critical NFP figures for September. LATAM news flow was concentrated upon Brazil. Anfavea offered the most definitive sign of slowing in this economy, as auto production tanked by 19.4% in September from August levels, while auto sales dropped by 4.9% m/m. Anfavea explained that seasonal effects were exacerbated by strikes in this industry seeking higher wages and that this combination was to blame for the sudden negative shift in production. The BCB's Director for Supervision, Antonio Meirelles, who's a voting member of the COPOM, affirmed that the ongoing financial crisis was providing a historic opportunity for Brazil to cut double-digit interest rates, with declining inflation rates a key determinant in this regard. Mr. Meirelles also emphasized the sizeable buffer available to the BCB through very large foreign currency reserves, which could be used in an extreme case of external credit drying up. The board of the BCRP left the benchmark reference rate unaltered at 4.25%, while recognizing the external risks ahead in its policy communiqué. The board also contrasted such risk with still brisk domestic activity, with both electricity consumption and cement sales cited as evidence of such resiliency. On the pure plain of asset prices, LATAM had to contend with a rising Euro (1.3420) on the back of increased hopes for a Europe-wide solution to support for the banking contingent, and another US equity market rally (S&P up 1.4%). A swift recovery in copper prices to US$3.30 p/lb levels keyed the CLP into gains of 1.7% to 520.85. However, it was the BRL that led the currency contingent in again recovering, this time to 1.7800, a full 2.8% appreciation versus the Dollar. Equities regionally were also led by Chile, as the IGPA rallied 4% for the same copper-based motive. Sovereign debt paper had a solid day, gaining 1% and tightening by 21 bp for the index representing the whole LATAM region. Argentina's 2033 Discount bond jumped all the way to 70 on the bid side, better by over 2 points on the day. Venezuela was runner-up in the recovery category, as the 2027 Global went to 65 ¼ bid, higher by about 1 ½ points on the day.

Perhaps the only difference described by Wednesday's trading session from the prior affairs of this week pertained to an increased number of potential US economic positives that helped to press for more short-covering rallies among US equity indicators. Beyond this factor, all else remained nearly the same, which meant that the blazing whipsaw environment created and maintained by European rumors, innuendo and speculation kept markets guessing as to directional preferences. ADP indicated that US private sector firms had created 91K jobs in September, with such estimate scoring well beyond the 50K projections held by the market. Non-manufacturing ISM in the US printed at 53.0 in September, its highest reading since March. Combined, both the ADP guesstimate and the ISM services data served to sooth US growth anxiety, at least on an intra-day basis. US equities used this as an underpinning to improve the risk tolerance message, in conjunction with stories flying out of Europe. German Chancellor Angela Merkel lobbied in favor of keeping Greece within the Eurozone, while affirming that the German government stood ready to capitalize its banks, if needed. Both indications served to further bolster confidence that some broad-based coordinated support package within the Eurozone was under discussion, helping to boost equity indices on the Continent. Troika officials reviewing Greek finances in Athens also leaked to the media assurances that the pending EUR8B tranche of assistance to Greece would likely flow to this nation, while lacing the same message with the usual admonishments on the need to actually implement reforms. In LATAM there was more significant developments, though of course these remained irrelevant to the regional markets duly tuned into the European melodrama. The FTA's with Colombia and Panama were stamped to be voted on the floor of US House by the Ways and Means Committee. Colombia held the podium in terms of regional focus due to an interview given by BanRep Director Cesar Vallejo who stated that the Colombian economy was giving off very clear signs of needing higher interest rates. CPI in this nation for the month of September then surprised on the upside, rising by .31% m/m, versus an expectation of +.01%. Y/Y CPI rose to 3.73% as a consequence of the September surprise. In Chile, the monthly economic activity indicator (IMACEC) was unchanged in August versus July, while the y/y comparison grew by 4.6%. BCRP head Julio Velarde cast doubts about the 5.7% GDP projection for 2012, stating before Peru's Congress that such level of expansion might be pared back. In regard to 2011, Mr. Velarde indicated that the 6.3% official estimate of the BCRP might be a tad short of actual growth levels. A modest weakening of the Dollar versus Euro (1.3330), alongside the hundredth change in sentiment towards Europe allowed the BRL, COP and the MXN to gain all above 1% versus the greenback. Equities markets in Chile and Peru, recent underperformers, also bounced by over 1%. LATAM debt paper traded laterally, gaining +.1%, while tightening 2 bp. The belly of the Brazilian NTN-F curve (2015) floated right above the 11% yield mark.

Europe again dominated the news flow and also the rumor mill on Tuesday, which caused another wild ride in US equity markets, a trajectory which was modestly transferred onto LATAM. The negative digestive phase of the Greek miss on its budgetary targets was further aggravated by news that the pending second disbursement of funds for this nation from the troika would be postponed again into November. This created an additional huge pitfall for Greek solvency, as current funds held by this nation are assumed to run dry before this new targeted date for decision on additional rescue funding. An explosive decline in the share prices of Dexia were met with more anxiety related to the European banking sector, but later reversed as speculation flowed that this institution would place problem loans to southern Europe in a 'bad bank' special purpose vehicle that in turn would be supported by Belgium and France. The swing factor appeared to come from statements emanating from Europe's Economic Commissioner Oli Rehn, who seemed to indicate that a coordinated, concerted efforts were under consideration in Europe in order to recapitalize banks, though no particulars were offered. On the tails of this speculation, Italy was downgrade by Moody's from Aa2 to A2, with a negative outlook standing in place. Fed Chair Ben Bernanke, testifying before the Joint Economic Committee of US Congress managed to state that the Fed was at the ready in order to support the US economy. This came after Mr. Bernanke indicated that this economy was on the verge of faltering, thus rekindling dreams of more liquidity stimulus. Arguments related to the pace of Brazilian economic expansion received a negative input, as IBGE reported that industrial production in August had declined by .2%, while the July figure was revised to gains of only +.3% from the original tally of +.5%. Moody's cooled ratings positive related to this credit in stating that Brazil was likely years away from an entry into the camp of A-rated paper. Transparency in meeting the primary surplus target was cited as an indispensable condition in achieving such objective. Brazil also was zapped, as a major US investment bank decreased 2011 GDP expectations to 2.3% during the second half of this year, while also trimming 2012 GDP growth projections to 3.4% from the prior estimate of 3.8%. In Mexico, consumer confidence indicated a visible downdraft injected by recent external negatives. Adjusted for seasonal variations, consumer confidence in this nation declined to 90.7 for September, markedly below the 92.8 expected by the market. The recent implosion of copper prices continued to shake the equity markets of both Chile and Peru, with losses on the day of 3.3% and 2.9% appearing for these indices. A rebound in the Euro to 1.3300 helped both the BRL and the MXN to stand atop the LATAM performance ranks. The former currency gained 1.9% on the day, while the latter recovered by 1.8%. LATAM debt paper was rangebound in losing .2% with a 2 bp widening of spreads.

LATAM was under another hail of risk-aversion violence in the financial markets yesterday, with most asset classes corresponding to the region stuck in reverse mode. Equities were noteworthy in their bearish tone, suffering direct contagion from new anxiety injected into the markets by Greek and European authorities with regard to the financial standing of this sovereign. The MERVAL went off the highway in losing 6.7% on the day, with banking stocks the key measure creating such conditions. All the other major regional indices lost at least 2.5%, with the sole exception of the IPC, which backed up by only 1.1%. US markets certainly provided plenty of contagion gunpowder to upset LATAM, as losses on the S&P500 hit 2.9%. A meeting of Euro Finance chiefs produced one of the main negative catalysts on the day. Authorities from this grouping indicated that the Private Sector involvement in the second Greek Rescue package would need to be re-worked due to a considerable change in conditions. This translated easily into a message of steeper haircuts to be applied to private investors in this partial restructuring of Greek debt obligations, exacerbating the queasiness associated with bank losses and counterparty risk. But the stream of negative political pronouncements coming from Europe didn't stop there. Incoming ECB head Mario Draghi stated that Eurobanks are suffering from a liquidity crisis, while Finland's Finance Ministry indicated opposition to a larger EFSF, while also downplaying a solution to the Greek collateral issue that is still pending. To cap off the extremely perverse background for European debt, Spain's Finance Minister stated that no amplification of the EFSF was necessary, reminding investors of the very convoluted positions held in Europe in regard to this critical facility. Euro was in distress throughout the trading session, with the cross against the Dollar tanking to 1.3170, which represented a decline of about 160 pips on the day. LATAM currencies sputtered alongside the Dollar rally. The COP lost 1.5% and the CLP 1%, as both currencies continued to play catch-up against the core of the LATAM grouping. Where LATAM fared better on the day was within the sovereign debt grounds. Hard-currency debt prices actually inched higher with the exception of Argentina on the back of yet another strong rally in US Treasury prices. With US 30-year notes diving to 2.76% in yields, long-duration Mexican bonds, like the 2031 Global, were marked up slightly (2031 higher by ¾ points to 142 ½ bid). Regional news flow improved, but remained relegated on the back of the European fallout. Banxico's monthly poll showed that market watchers have cut their 2011 GDP forecasts to 3.77%, off by 4 bps, while CPI projections dipped to 3.66% from the prior 3.72%. Minutes from the BCCh policy meeting of September showed that the CB board didn't consider cutting its benchmark rate during this meeting. An annual 18-K filing with the SEC on the part of Argentina suggested that this sovereign still might seek to issue debt on the international market in 2012 in order to plug a US$9B financing hole for this period. Brazil reported a US$3B trade surplus in September, higher than the US$2.5B estimate, but lower than the US$3.9B hit in August. One-year LTN paper in Brazil hit 10.41% yield, with the compression a reflection of president Rousseff's strong call for lower rates in this nation to counter the ongoing sovereign crisis.

The sentiment roller-coaster ride for global markets continued unaltered on Thursday, as month and quarter-end pressures appeared to filter into numerous asset classes to force window-dressing upside gains. Fed Chairman Ben Bernanke did his share in redirecting the sentiment tide by stating that a decline in inflation readings or expectations would motivate a response on the part of the US Central Bank, which was interpreted to mean that more easing might lie beyond the horizon. Germany's key vote on expanded powers for the EFSF in the Bundestag went through without any snags, at least temporarily cooling the political fears on this front. US economic metrics then provided additional thrust power for the intra-day session. The Final revision of 2Q GDP for the US produced a slight rise in the growth figure to 1.3%, with an important push in consumer spending, though this was allocated to services expenditures and business structures. A decline in jobless claims to 391K did the rest in setting a better overall tone related to the US economy, as the usual chatter surrounding recovery possibilities returned. Standing in the shadows of the Bundestag news was a very weak auction of short-to-mid duration paper on the part of the Italian Treasury, which totaled only EUR7.9B versus the EUR9B intended for sale. US equities were lifted moderately (S&P +.8%), while 10-year US notes moved back to 2% yields. In LATAM, Equities traded with lessened volatility. It was the IPC that led the rankings in this regard, gaining modestly by +.7%. Such leadership contrasted significantly with the 1.3% depreciation against the Dollar experienced by the MXN amid an otherwise lateral LATAM currency line-up. New stories about a worsening of the health of President Chavez emerged, with the twist pointing to renal failure and emergency treatment in Caracas. This conjecture immediately gave way to speculation about his possible absence from the Presidential electoral ballot in this nation. Such possibility was good enough for Venezuelan Global bonds to find a moderate updraft in price terms. The 2027 Global advanced back to 63 5/8's bid, which was higher by 1 ¼ points, while the 2025 Global added over 2 points in scoring closing bids at 57. Mr. Chavez, however, fought back by appearing on local TV throwing a baseball around on the Presidential grounds. Brazil's Central bank used a descriptive of moderate adjustments to interest rates to coax inflation back towards the preferred central target, deflating anticipation of more dovish rhetoric to come from this entity. Finance Minister Echeverry of Colombia deemed the new spot levels for the USD/COP as positive for exporters, while stating intentions to steady recent volatility in looking to dampen the same.

Gains garnered by most LATAM asset classes on Tuesday, were rapidly reduced or totally dissipated during yesterday's trading session, amid combined concerns about China and Europe that gave way to a significant collapse in the copper futures markets. Sentiment reversal commenced during Asian trading hours. The Shanghai composite index, which had been off the markets main radarscope for some time, dropped a minute 1% during these hours. Though the intra-day fall was nothing to speak of, this setback placed this index at its lowest level since July 2010, pushing forward fears about slowing on the mainland. Such sentiment was further stimulated by remarks coming from one of the preeminent equity analysts dedicated to the Chinese spectrum, who implied that financial market risks for the mainland were still high and that a head landing was in the cards somewhere into 2013. Policy watch on the European front was in a transition phase, as the approval of the property tax in Greece pushed this sovereign out of the limelight for the time being and passed the baton to the Bundestag, as a vote to ratify prior funding accords on the EFSF was due on Thursday. Another extension of the short-selling ban by Spain and Italy served to further shake sentiment. The former of these two countries prolonged its short-selling ban until market conditions allow it to be lifted, while the latter was earmarked to end on Nov.11 of this year, emulating a similar end date held by French market regulators. Markets looked antagonized by such extension, as intra-day sentiment again faltered and asset prices declined. On the US side, durable goods orders for August were less than reassuring, as the headline dropped by -.1%. However, the monthly tally, when tabulated as non-defense capital orders ex-aircraft, rose by an unexpected 1.1% amid jumps in orders for computer and communications equipment. This result elicited some small talk of a lessened recessionary concern in the US. What was notorious and influential for LATAM from the external front was the damage inflicted upon commodity prices during the trading session, particularly crude oil prices, which tumbled to US$80.66 p/barrel, off a whopping 4.4% and copper prices, which imploded by 7.7% to close at US$3.1755 p/lb. Wheat, corn and soybeans were also important with regard to the inflationary outlook in LATASM, with each of these three critical grains diving by over 3% on the day. LATAM, as has been the case of late, had few relevant headlines. Stories ran that the US voted against small IADB loans that were destined for Argentina in recent weeks, while US Treasury officials for international markets and developments indicated that more votes against funding for this nation through the World Bank were on their way. The maneuvers at the multi-lateral level were seen as open signs of pressure on Argentina to deal with pending multi-lateral issues, as well as holdouts. Mexico's IGAE index climbed by +.88% m/m during the month of July, easily outpacing markets expectations which pointed to a +.3% gain. This reversed a contraction sustained in June. Agriculture was the big thruster for such gains. The BCCH's poll of traders indicates that expectations point to no change in the benchmark rate during October, but that 5.00% should be hit in the next three months and then 4.50% within the next 12 months. LATAM currencies had to give up most of their recent recovery gains due to the change in the climate related to the global economy. Brazil was at the top of the currency depreciation board, as the BRL fell by 1.8%, while the COP was close behind in shedding 1.8%. Lima's IGRA stock index felt the brunt of the commodity downfall, with losses reaching 3.1%. Argentina's debt paper also reversed on its recent gains. The 2033 Discount bond sunk back to 68 bid, off 2 ¼ points on the day, while Venezuela's 2027 Global dropped back to 62 ½ bid, off 1 5/8 points on the day. Overall, LATAM debt paper declined by .5% on the day, with spreads widening by 6 bps. Brazil's 2021 NTN-F increased its yield levels by 10 bps to 11.69%.

LATAM external debt markets were marching to their own drum beat yesterday in a curious divorce from the highly correlated tone maintained between assets from the region and risk aversion sentiment. Despite a trading session celebrated for a US equity rally that came on the heels of reports that an innovative structure to leverage the EFSF was under consideration by the EU, LATAM debt paper was marked down across the board, with the usual suspects, namely Argentina and Venezuela, not the culprits of such underperformance. Using the most widely followed sovereign debt index for the region, LATAM paper lost 1.1%, while widening 6 bps on the day. Such negative push also implied an overcorrection for a 10-year US Treasury bond that rose 7 bps in yield terms to 1.90%. Of course the European story and all its sub-plots were alive and well in setting the overall tone of the markets across the globe. Greece held to markets to another countdown and critical parliamentary vote, this time around on pending new property taxes that are opposed by up to 70% of the population, according to the latest survey figures to come from Athens. Major lift, at least in developed market confidence, came through media reports that a plan was under wraps that would use the seed money from the EFSF in order to allow the European Investment Bank to create a special purpose vehicle that would issue debt in Euro's on a leveraged basis. The proceeds of such debt sale would be issued to purchase debt of distressed European sovereigns. The bonds issued by the EIB's investment vehicle would serve as pledged collateral before the ECB in order to gain access to liquidity facilities. A complicated structure, that immediately drew comparisons to the US TARP make-up of a couple of years back, but enough of an attempt on the part of the EU to bring some respite to riskier markets. A 2.3% decline in US August new home sales was basically ignored by the markets due to the heavy concentration on European headlines. LATAM had more official commentary on currency fluctuations than actual news flow, though the weekly FOCUS report in Brazil brought slightly more elevated projections for the USD/BRL ahead (1.68 for both 2011 and 2012). Talk increased of a 75 bp cut to come during the October 19 meeting of the COPOM, which we find to be largely dependent on the headline risk emanating from Europe. Panama produced a very rapid 7.2% y/y growth rate for the month of July. BanRep head Jose Dario Uribe discarded the notion that more inflation would accumulate in the Colombian economy as a consequence of the decline in the COP versus the greenback. Instead, Mr. Uribe called the setback healthy, stating that the currency served as a 'shock absorber'. Banxico head Agustin Carstens aired what we find to be the most reasonable evaluation of the regional currency turmoil, terming the same as 'transitory', with current conditions oversold. Mr. Carstens stated that he expected a resumption of the appreciation trend going forward, mush as we do. Brazil's 2034 Global bond was marked down to 139 on the bid side, representing a drop of nearly 2 points. Venezuela's 2027 Global hit a new low at 62 ¾'s, off 1 ½ points on the day. The Chilean peso was the leader in recovery terms within regional currencies, up +.8% to 512.00, while the IPC (+2.5%) put in a good run in mirroring the gains on Wall Street.

The end-of-week trading session produced a minor respite for LATAM, as the intense defensive backpedaling in most asset classes corresponding to the region was detained, and even moderately reversed in some cases. Divergent talk on the situation in Europe still had the markets ear and sentiment in full grasp. Germany's Finance Minister Wolfgang Schaeuble appeared to state that Greece's second bailout might need a revision, again exacerbating the political drama on the continent. Sentiment veered back towards hope when news broke that the EU had a plan to exercise a buyback of Greek debt open to all investors, though details were lacking. Finally, EU Monetary Affairs Commissioner made mention of continental intentions to recapitalize its banks, rekindling expectations that some back-stopping was on the way in this regard. New US data was lacking, while LATAM was involved in rhetorical intervention seeking to stabilize matters in the FX ring. Banxico head Agustin Carstens specifically stated that the MXN was undervalued after the recent shelling that this currency has endured, highlighting the solid fundamentals of this nation. BCCh head Jose de Gregorio reiterated his sense that this institution has plenty of flexibility on hand in order to alter the current course of monetary policy to combat the risk of a developed-world recession. Current account deficit figures in Brazil were on the side of negative surprise. At the headline level, the current account suffered a shortfall of US$4.9B in August, which was significantly beyond the US$3B expected by the markets. A sharp increase in profit repatriation seemed to generate the bulk of the shortfall, though the deficit in the services account also remained a thorn in the side of the gap in current account revenue. Currencies were a primary area demonstrating that some consolidation requirements were starting to be fulfilled for LATAM assets after the recent collapse. The BRL was the biggest recovery currency in the region, gaining 3.7%, while the MXN reversed course in adding 2.8% versus the greenback. Such bounce occurred despite continued pressure on the precious/base metals and also on crude oil prices. Standouts among these commodity markets were silver, which plunged slightly below US$30 p/oz, and crude oil, which dropped below US$80 p/barrel. Talk of more margin hikes to come definitely kept the bulls at bay in the entire commodities circle. Andean equity markets kept to the bear trend signals, though declines were only of a 1% magnitude for the IGBC and the IGRA. As US 30-year note yields continued to compress (2.87% yield), LATAM sovereign paper edged a tad lower, with Venezuela at the head of the class in shedding .6%. Argentina fought off the bears, at least temporarily, as the 2038 Par Bond rose to 34 bid.

LATAM was still reeling from Wednesday's pummeling of the BRL and the MXN when it awoke to yet another full-scale global economic alarm blasting on Thursday morning. Absolute disappointment with FED non-action on liquidity stimulus for the US economy was still a factor that was being digested, while multiple investment firms and noted market participants were piling on the bandwagon in predicting possible coordinated recessions for the US and the EU. Though such outlook had already received plentiful airplay, a repeat discussion of such risk multiplied the global slowing fears present within financial markets across the globe. On the underside of such turn stood China, as manufacturing data from the mainland failed to make a turn back into expansionary terrain. According to the September HSBC/Markit Chinese PMI survey, this indicator remained in contractionary territory for the third consecutive month at 49.4, which played right into the hands of the slowdown wave gripping the markets. Europe, though somewhat less notorious, but certainly not outside of market radar range, also contributed significantly to the frenzy surrounding a recession in developed markets. Again, PMI readings were the key. As per Markit indicators, services in the Eurozone entered contractionary surroundings in September at 49.1, a steep drop from the prior reading of 51.5. Manufacturing continued to erode, scoring only a 48.0 for September, after an already negative 49 in August. It was the first time since July of 2009 that both sides of the European PMI pointed scored in territory of decreased activity. Barometers on manufacturing in core European countries added more flames to the fire. Germany was estimated to have a 50.0 PMI in September, barely avoiding a contraction label. France was in much worse surroundings, notching a 47.3 score, from the prior 49.1. In this context, a report stating that US consumer confidence had risen by .3% in August was a non-event, as were the 423K jobless claims tallied in the latest weekly survey. However, statements from key shipping concern Federal Express about economic slowing simply confirmed the markets key intra-day preoccupation related to tumbling trade flows. In contrast to the trembling external tone, IBGE reported in Brazil that unemployment held unchanged at 6.0% in August, while real wages increased by .5% m/m, in a repeat monthly development that will surely stir the cauldron of inflation concerns. The currency surprise of the day also came from the Brazilian camp, as the BCB dusted off its methodology of selling Dollar swap contracts in auctions, in order to prop up the BRL against the greenback. The last time such method was used was at the end of June of 2009. In the context of the depreciation of the BRL, reports also circulated that Brazilian soybean farmers were accelerating overseas sales of next year's crop, with estimates indicating that 20% of the coming harvest had been sold versus usual ratios in the 17% to 18% vicinity. BCCH President Jose De Gregorio stated that this institution would steady its Dollar purchase program in light of the ongoing events affecting regional currencies, without directly indicating an end to the same. Asset price changes in the region were dreadful. Regional equities were crushed. Colombia's IGBC held the strongest in the region amid a 3.3% loss, while the other extreme in performance was undertaken by the MERVAL which crashed by 5.7%. The bigger equity markets were off by about 4.6%. Copper endured a drubbing, with prices dipping as low as US$3.35 p/lb in afterhours trading. Such plunge forced the CLP into a strong retreat, with losses tallying 3.7%, which led the currency camp in the region in terms of depreciation. The MXN and the COP lost 2% in the runner-up spot. Longer-duration NTN-F paper in Brazil continued to elevate on the side of yields. Both the 2017 and the 2021 paper exited in the surroundings of 12.30% yields. Sovereign debt paper lost 1.5% in value, while spreads gapped wider by 36 bps. Brazil's 2034 Global bond plunged by 3 ¾ points to 140 ½ bid, while Argentina's 2033 Discount bond could only manage a 67 bid at the end of trading, well below the 72 of the prior day. Venezuela's 2027 Global lost 2 points, backing to 64 bid. The same Dollar losses of 2 points occurred for Mexico's 2031 and 2033 Global bonds. Peru's 2033 Global lost 3 ½ points in dipping to 142 bid, while Panama's 2027 Global lost 4 ½ points in descending to 139 ½ bid.

After an intense period of waiting for the FOMC to actually wield some clout and act on behalf of US markets, investors seemed outright disappointed with the strategy unveiled by this grouping. Operation twist was in reality deployed by the FOMC to the tune of a commitment to sell Treasury paper with a maturity horizon of 3-years or less and to in-turn buy Treasuries with maturities outstanding of 6 years or more, all the way out to the 30-year benchmark for a total amount of US$400B within each leg of this swap. The policy announcement came accompanied by a very ominous warning with regard to the US economy, as the FOMC indicated that it saw 'significant downside risks' to the outlook. Such warning thus took the role of most important development within the FED policy directives, overwhelming the curve-flattening attempt on the part of the FED due to the lack of surprise of this initiative. Slowing concerns combined negatively with a market already swamped by concerns related to the global outlook. Before the FED hit the tape, most focus was placed on the banking sectors of the US and Europe, mostly thanks to the ratings intervention of Moody's and S&P. S&P downgraded the qualifications of approximately 15 Italian banks, while Moody's sheared the ratings of three US money-center banks, multiplying the anxiety related to the liquidity positions of credit institutions on the Continent and beyond. US equities responded to the lack of a fresh approach to US monetary policy by diving 2.9% on the day. US Treasury paper sided with the FOMC in diving to 1.83% yields for 10-year paper and 2.93% for the 30-year maturity. LATAM equities posted near 1% negatives as a common denominator throughout the region, though the MERVAL served as an exception in diving by 3.1%. LATAM action centered on the currency markets, where both the BRL and the MXN were decimated. The Brazilian real lost an enormous 4.9%, closing at 1.8724, in what was viewed as a response to overabundant Japanese position liquidation. The Mexican Peso collapsed by 3.8%, with the decline propelling the spot USD/MXN rate to 13.74. Locally in Brazil, the NTN-F bonds jumped by 20 bps to the upside in yield terms, essentially confirming the Japanese rumor. Colombian President Santos and Brazilian President Rousseff pointed to the need for coordinated LATAM action to shield against the expanding European sovereign debt wave. In Brazil, President Rousseff suffered another large political setback, as the lower house of Congress rejected the re-introduction of a financial transactions tax aimed at funding healthcare programs in this nation. BCRP head Julio Velarde discarded immediate action on Peruvian rates, while Finance Minister Castilla pledged expansionary fiscal policy if the external scenario were to worsen. Latin American sovereign debt widened by 12 bps, amid losses of .4% on the most followed index for this category. Argentina's 2033 Discount bond could only muster a 72 bid in leading the tally of credits with the most losses in the category.

LATAM turned in a mixed performance on Tuesday amid the usual start of the waiting period for word of the next move to be undertaken by the FED in the US. Greece remained the dead center of attention, with each speculated turn in the fate of domestic measures and possible European action provoking plenty of knee-jerk reactions. The prologue to the start of the US/LATAM session transmitted opposing sentiment vibrations. Reports circulated that Bank of China had stopped trading in FX forwards and swaps with some European banking institutions, with French banks apparently prominent in such decision. Speculation also increased that Greece would hold a Referendum on its membership in the Eurozone, though this was later officially denied. Global growth anxiety also absorbed a new jolt, all courtesy of the IMF and its new projections for economic expansion around the world. Chinese growth in 2012 was reduced to a 9% forecast, from the prior 9.5%, while estimates for advanced economies were significantly pared back to 1.6% in 2011 and to 1.9% in 2012 from the prior targets of 2.2% and 2.6%, respectively. More importantly, the IMF warned of recessions in both the US and Europe if the tide of economic/financial difficulties weren't addressed. Obviously, this constituted an extensive litany of negatives for the markets, but modestly improved sentiment prevailed, also at the prodding of Greece. On one side, Greece was able to sell EUR1.625B in 3-month Treasury Bills at a yield of 4.56%, with a bid-to-cover of 2.84:1. Both the yield and the bid-to-cover only denoted a slight worsening versus a similar auction in August. More importantly, Greece went ahead and paid a total of EUR769MM on due coupons corresponding to bonds maturing in 2037 and 2040, thus burying the notion that these pending payments would mark the opportunity for this sovereign to default. Finally, the anticipated phone conference between the troika and Greece produced yet another Greek commitment towards more austerity measures, which promoted a positive market response in understanding that this sovereign was still looking to remain in the EU. All other developments turned into ancillary noise. Only Brazil produced anything of note within LATAM. The BCB published a co-called 'prime rate' for the first time, in an attempt to allow for more transparency and competitiveness within the lending sector. The initial calculation placed such reference rate at 16.2%. Brazil made intense noise in international trade channels thanks to its prodding of the WTO to update rules that allow members to protect their industries from trade imbalances, in yet another concealed initiative aimed at China. IPCA-15 rose by +.53% for the m/m calculation to mid-September, which was above the +.49% estimated by the market, thus slightly rekindling questions about monetary policy. Currencies in LATAM played a game of catch-up, as the CLP dropped by 1.9% against the Dollar to close at 489.90, while the COP declined by 1.2% to 1859. Equities had diverting performance, though the IPC was a standout in rising by 2.1%. Debt paper was modestly marked up enough for spread compression of a paltry 2 bps.

The re-start of trading activities for LATAM financial markets found that little progress had been made on the multiple impasses surrounding Greek debt, while much hinged on a pen ding conference call and later visit to Greece by the so-called troika of coordinating financial institutions. Given the lack of advances in securing disbursements for the Greek government, markets returned to talk of imminent lack of cash on hand for this sovereign, further exacerbating the already panicky market climate. Making matters worse, S&P downgraded Italy to A from the prior A+, though this action occurred after markets had settled for the day. Aside from a proposal for increased tax hikes to spur revenue in attempting to reduce both the debt level and the annual budget deficit over a 10-year period, the US had little else to provide to the overall market make-up. BRIC countries continued to seek a protagonist role with regard to the dangers lurking in Europe. In the latest attempt to offer assistance to the Continent, Brazil indicated it would make new funds available to the IMF in order to help on the front of the European quagmire, reiterating that the rest of the BRIC's would follow similar action. A figure of US$10B was tied into the Brazilian announcement as a possible size of funding. Brazil's weekly FOCUS report produced a minute change for IPCA expectations in 2011 to 6.46%. Only the 2011 projected year-end FX rate of 1.6500 was noteworthy, as this level rose by 500 pips from the 1.6000 held until the prior week. By far the most troubling developments for currency longs in the region came from Brazilian shores, as the USD/'BRL exploded to the upside, advancing 3.7% to 1.7976. Only the USD/COP pairing generated appreciation of over 1% on the day, as the spot for this duo moved to 1856.50, higher by 1.9% on the day. The Mexican peso only lost .6% versus the greenback, but this was suffice to push this currency to 13.12. Despite US equity losses of 1% on Greece, as taken from the S&P500, most of the major regional indices were contained to losses of less than .5%, with the exception of the MERVAL and the IGRA, as both lost 1.2%. A safety run to 1.94% on the US 10-year bond, forced LATAM debt into strong widening of 19 bps, which has now pushed the regional indicator to +446 bps. Argentina again led losing column, off 1.9, with spreads out by 32 bps.

LATAM remained in a captive position with regard to the sovereign risk emanating from Europe, and another Friday full of talk of an imminent default by Greece. Talks among European Finance Ministers produced very little in terms of advancement on key issues, such as that of collateral demands on the part of European nations contributing to the second Greek bailout. News that only 75% of bondholders had signed up for the proposed Greek bond rollover created some fleeting concern about the pending financing for this nation, while news that Germany would postpone the implementation of any legislation referent to the ESF also kept the markets on the defensive. The US avoided exacerbating the sentiment picture, as the preliminary University of Michigan consumer sentiment survey for September rose to 57.8, well above the 56.5 market expectation. LATAM focus was on Argentina, due to local reports indicating that this nation would again employ its foreign reserves in order to pay down debts in 2012. Earmarks that were speculated to exist in the 2012 budget presented before Congress for such purpose varied, with the high mark repeating the US$7.5B of 2011. 2Q GDP in Argentina was reported to have expanded at a 9.1% pace over the similar quarter in 2010, while the q/q change was determined to have been of a magnitude of 2.5%. BCB Chief Alexandre Tombini voiced his expectations that by April of next year, IPCA should have diminished to 5.2%, 200 bps below its current level. Colombia looked to exchange local bonds maturing in 2012, 2013 and 2014 for paper due in 2015, 2018 and 2026 for a total amount that should reach between US$1.1B and US$2.2B, with liability duration extension the apparent underlying objective. Modest US equity upside (S&P 500 higher by .6%), allowed 1.5% gains for both the IPC and the BOVESPA. The new weekend scare on Greece pressured the core LATAM currencies to depreciate. The MXN slid to 13.05 at the close, its weakest closing level in the current move, while the BRL leaped to 1.732, also a new cycle high. Curiously, the debt anxiety failed to force further losses in LATAM high-beta sovereign paper. A clear example was provided by Argentina, as the 2033 Discount bond corresponding to this sovereign moved higher to 76 ¼ bid, leaving behind the 74 handle on this side of the market.

Before the ball got rolling in LATAM yesterday, the markets had to deal with surprise global coordinated Central Bank action in Europe and Japan that attempts to make available plentiful Dollar financing for banking institutions over the year-end period. Joining in the fray stood the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank, all of which pledged to execute 3-month repurchase operations starting in October and culminating in December for Dollars against collateral. Euro received an immediate boost in the arm, rising to 1.3870 versus the Dollar. However, the Dollar weakness failed to incite much momentum in the LATAM club. Only the BRL mustered some minor steam in advancing by +.5% versus the Dollar to 1.7045. There was a multitude of US macro data but this spectrum also failed to provide any pillars from which to elevate sentiment. US August CPI was a surprise in rising by +.4% at the headline level. Initial jobless claims jumped to 428K, stressing the outlook on jobs. NY Empire survey printed at -8.8, again suggesting depressed manufacturing. To round out the series, the Philly Fed had a less negative message charge than last month, but still implied quite challenged surroundings for manufacturing (-17.5). Brazil maintained the core concentration of investors within the region, this time around for a new development that may up the ante in regard to a potential trade war. Specifically, a new tax incentive scheme was revealed that will favor local producers in obtaining a large tax break on the industrial production tax. Entities able to take advantage of this incentive would need to use at least 65% in local parts, or meet a series of other requirements. US equities levitated, with the S&P higher by 1.7% despite the dubious benefit of the daily round of economic data. Both the IPC in Mexico and the IGRA in Peru gained over 1% in leading the region. LATAM debt grew softer in response to a jump in US 10-year rates to 2.07%. Mexico's 2031 Global declined by 1 point to 143 ½.

The trading air remained subjected to heavy doses of rumors and speculation surrounding Europe on Tuesday, which kept the financial markets guessing as to the appropriate direction in which to turn. There were opposing forces at work off of the starting line. On one side, Fitch Ratings voiced its view that Spain faces current credit risks to the downside as growth sales, and budget targets likely fall short. The compensating influence came by virtue of rumors that the Merkel/Sarkozy tandem would make some sort of announcement on Greece during the day. This latter rumor was officially denied, leaving the markets to ingest a very poor Italian mid-duration auction. Italy was only able to get off EUR3.9B of an intended EUR4B of a new benchmark 5-year BTP. This instrument sold at a very high 5.60% yield, with a minimal bid-to-cover of 1.28:1, lending to increased preoccupation about the longer-term funding considerations attached to this credit. Italy then added to sentiment pressure in clarifying that recent meetings with China Investment Corp. authorities didn't include discussions on the purchase of sovereign bonds corresponding to this nation. Phase two of the spin from the rumor mill consisted of talk that there would be a conference call between Ms. Merkel, Mr. Sarkozy and Greek Prime Minister Papandreou on Wednesday, which appeared to gain confirmation from German authorities. Rounding out the developments on the theme of Europe, Brazilian government officials indicated that preliminary talks were underway in looking to have the BRIC nations increase its holdings of European sovereign debt. Confession reigned in the markets as a consequence of the extended number of sentiment shifts dictated by such contrarian signals. The S&P managed a +.9% advance, though the underpinnings of such move were an intrigue. US Treasuries backpedaled slightly in yield terms, as the 10-year note hit 2.00%. This caused a slight markdown in LATAM sovereign prices. Argentina's 2033 Discount bond hit new cycle lows at 76 on the bid side, which was 2 points lower versus Monday. Mexico also found additional softness, as the 2034 Global was marked down by ¾ points to 124 ¼. Regional events were limited to Brazil, where retail sales reported for the month of July were an upside surprise in posting 1.4% m/m gains and a 7.1% y/y rise. Inflation due to increased demand was the resultant market spin from this figure. Provisions within the 2012 budget proposal would allow Mexico to increase its net external debt by US$7B in 2012, indicating that this nation would widely exceed the US$3B borrowed in the international markets this year. Small gains were the common denominator in LATAM equities, with the MERVAL higher by +.7%. Currencies looked to consolidate after recent melting. The COP backed up by .4% to 1813 in leading the regional scoreboard.

LATAM markets arose on Monday to find that Friday's rumor of an imminent Greek default was untrue, but this didn't clear the trading air on the European continent. Quite the contrary, as speculation related to German intentions to ring-fence its banking system gained momentum, thus amplifying the case for a potential Greek default, which conveniently refused to be discarded as a possibility by German politicians over the weekend. Ratings agencies again had a critical role in shaping market sentiment, as rumors that Moody's would proceed to downgrade the top-line French banks on their exposure to Greece created a wave of equity selling of these names on the Paris Bourse, with losses accumulating easily beyond the 10% mark for the three largest entities within this grouping. Italian bank shares repeated their ongoing tendency to plunge and then enter periods of trading halts, also exacerbating the nerves with regard to European banking health. Italy was also in on the negative picture broadcast from Europe, courtesy of a 12-month T-Bill auction that priced out at yields above 4%, establishing a new three-year high. Only one element pushed sentiment in the opposite direction, perhaps saving the global financial marketplace from multiplied losses. Media carried news that Italian authorities had been in contact with their counterparts from the China Investment Corp. asking for significant purchases of Italian debt. Absent major US economic data, LATAM was forced to deal with another day of large asset price swings coming from the US that dictated regional price movements for the most part. The Dollar gapped lower against Euro, trading with a 1.35 handle, before reversing to close at 1.3640 on the back of the China bond buying hopes. 10-year US paper remained in highly defensive mode, with yields at 1.94%. US equities managed a positive day, even though the early going was decidedly rough as European contagion took hold (S&P +.7%). LATAM focus was centered on the weekly BCB poll of economists, which produced a large decline in SELIC expectations for both 2011 and 2012 to 11.00% levels. Mexico's July industrial output printed gains of +.5% m/m, well above the +.1% held by the market. Brazil's CB President Alexandre Tombini reiterated his view that the markets were in for a longer-term crisis then in 2008 with regard to the unfolding European and US quagmires. Equity pain in LATAM was transitory for the most part, with losses only holding in Argentina and Chile to tunes of slightly over 2%. Regional currencies were severely hurt by the multiple risk aversion signs slamming the markets. Brazil was at the bottom of the performance ladder, as the BRL lost 1.9%, while both the MXN and the CLP lost 1.3%. Debt paper had a very visible risk adverse skew as illustrated by the drop in Argentina's 2038 Par bond to 36 ¾'s bid prices, which marked a new cycle low. The same can be said of Venezuela's 2034 Global, which shed ¾ points to 65 ½ bid, wider by 15 bps.

There was an overabundance of activity ongoing for LATAM financial markets on Thursday, as the monthly policy communiqués and press conferences from the ECB and the UK coincided with speeches by both Ben Bernanke and US President Obama. Additionally, the region received policy minutes from the COPOM, while CPI hit the tape in both Chile and Mexico and the BCRP had another go at the reference rate. Europe policy-makers provided little in terms of new asset price inputs, leaving only a downgraded estimate of growth on the table for the EU (1.4% to 1.8% GDP growth range), while the UK failed to go with added asset purchases. Weekly jobless claims in the US remained on the defensive side at 414K, while exports in July for the US looked to have regained some confidence in rising by 3.6% m/m. Fed Chair Ben Bernanke offered no new details of incoming changes to FED policy, with only a mention of doing everything that the FED can to restore growth and employment. The lack of specifics served to guide US equities to moderate losses (S&P off 1.1%). President Obama hit the airwaves after the close, with little offered in terms of surprises to jar US unemployment and growth, though the proposed job creation package (US$447B) exceeded initial estimates. Anxiety on European debt and inaction by the ECB allowed the Dollar to trade all the way through to 1.3881 versus Euro, though this went mostly unnoticed by LATAM. It was only the BRL that posted negative intra-day performance (-.2%) and this was due to the COPOM minutes that were published and not due to the USDollar upside. The rest of the LATAM currency contingent was notoriously flat. In the region, Brazil was the top focus. As mentioned, the COPOM minutes gave way to a slight BRL depreciation, as the economic evaluation put forward by the members of this committee when lowering the rate suggested a more pronounced dovish skew, which suggested additional cuts to come. Aside from the slight decline in the BRL, the BOVESPA rose by 1.8%, distancing itself from the rest of the regional indicators which were mostly caught in declines (IPC lower by 1.3% and MERVAL off 1.5%). Peru kept its benchmark rate unchanged at 4.25%, with the brief policy communiqué suggesting that deeper external risks or domestic slowing would activate a policy response of lower rates. Mexico's 2012 budget draft went to Congress, with the outline indicating a contraction in overall government spending to a growth rate of 2.5% of GDP for this exercise, down from 4.1% in 2011. Auto production and sales in Brazil remained quite brisk, with the former activity higher by 5.4% in August, while the latter spiked by 6.9% m/m. Sovereign debt prices had little incentives for price swings, though the long-end in Mexico seemed to absorb slightly better bids in contracting by 6 bps.