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Last Week in Brazil and Mexico: Nov 3-15, 2013

This report captures the main macro events that occurred over the past 2 weeks in the 1st and 2nd largest economies in the LATAM region. Brazil: ! (Neutral): October inflation barely recedes on a year over year basis, logging a reading of 5.84% from last months 5.86%. Elevated inflation has hamstrung the central bank, forcing it to keep rates elevated despite weak economic conditions.i However, current public perception is that it is now under control. ! (Neutral): Curbed inflation along with increased public appearances by President Rousseff has resulted in a rebound of her polling numbers from the June nadir when protests rocked the countryii. It is highly likely that she will win the upcoming October 2014 presidential election. ! (Bearish): Auto sales lessened 3.3% in October vs. the same month last year (YoY) despite substantial tax breaks passed by President Rousseffiii. On a broader level ! (Bearish): While retail sales growth is positive, Septembers report foils expectations, posting a YoY rise of 4.1% vs. an average estimate of 4.5%. ! (Bearish): The Banco Central do Brasils high frequency index of economic activityiv unexpectedly contracted in September, adding to signs that President Dilma Rousseffs efforts to spur growth are failing. v ! (Bullish): however, HSBCs Service oriented Purchasing Managers Index just surged to a 8-month high, raising hopes that LATAMs largest economy is set to rebound in Q4vi.

| Rodrigo C. Serrano, CFA | SIPA | Columbia University Master of International Affairs 14 Candidate | New York City, NY | 01-305-510-0181 | rcs2164@columbia.edu !

! ! ! Mexico: ! (Bullish): Political jockeying continues between the PRI, PAN, and PRD (the three political parties participating in the Pact for Mexico) to pass the most comprehensive reforms in more than a decade. Successful passage of the ambitious energy reformvii would make the country an extremely attractive place to invest and would lead to increasing oil production, which would simultaneously help the countrys fiscal picture. ! (Bearish): However, worsening economic conditions now and over the coming months may begin to challenge political will on these significant shifts. o Industrial production for September disappointed, falling 1.6% on a YoY basis vs. expectations of a flat reading.viii o Furthermore, Mexican consumer confidence has clearly carved out a top. o Meanwhile, Banxico chops its 2013 economic growth forecast by 50% and cuts its 2014 estimate by roughly 6%. Falling exports (is the U.S. recovery faltering?) and a slumping construction sector are to blame. Inflation is set to pick up due to recently passed tax increases as part of the fiscal reform.ix o To make matters worse the Conference Boards leading indicator signals that economic activity will be subdued for the remainder of 2013.x !

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! ! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! i http://www.reuters.com/article/2013/11/07/us-brazil-economy-inflationidUSBRE9A60HN20131107 ii http://en.mercopress.com/2013/11/09/brazilian-president-recovers-from-june-protests-andleads-polls-for-next-year-s-election?utm_source=feedly iii http://www.reuters.com/article/2013/11/06/autos-brazil-idUSL2N0IR0PV20131106 iv http://www.bcb.gov.br/pec/Indeco/Ingl/ie1-54i.xls v http://www.bloomberg.com/news/2013-11-14/brazil-economic-activity-unexpectedlycontracts-in-september.html vi http://www.reuters.com/article/2013/11/05/brazil-economy-servicesidUSL2N0IP11O20131105 vii http://www.ft.com/intl/cms/s/0/dd14d0e8-477d-11e3-939800144feabdc0.html#axzz2l3jxHW30 viii http://www.reuters.com/article/2013/11/11/mexico-economy-idUSL4N0IW3UR20131111 ix http://eleconomista.com.mx/finanzas-publicas/2013/11/06/banxico-recorta-pronostico-pibotra-vez x http://www.nasdaq.com/article/press-release-the-conference-board-leading-economicindexr-lei-for-mexico-declines-20131115-00713 !

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