Copom slowed the pace of monetary policy tightening to 50bps after two previous increases of 75bps on the back of a deceleration in both economic activity and inflation. This slowing in rate hikes is a key development in the trend of monetary policy as it shows, in our view, that Copom views the deceleration in price increases as less a temporary phenomenon and one more a consequence of both external and internal economic slowdowns. Going forward, in our view, further increases in monetary policy will be heavily data-dependent, focused on the performance of inflation with a clear bias for fewer hikes.

Markets are becoming increasingly nervous about the risk of the US economy entering a double-dip recession in the next few quarters. We think that the risk of a double-dip remains quite low. In our view, for the US economy to re-enter a contraction, a major economic/financial event must occur somewhere. The process of inventory rebuilding will only stop if US businesses and generally all world multinational corporations start to price-in a collapse in global demand in 2011. We think that only a major confidence shock can generate the "deflationary state of mind" needed to stop the process of economic normalization.

In a seemingly backwards evolution of its economic scenario, Venezuela was entering deep recession last year as most countries in the region were exiting. The country posts soaring inflation rates while many countries have faced deflationary pressures during the global crisis. As many privatize and experience a resumption of healthy FDI inflows, Venezuela's increasingly interventionist policies have driven out foreign investment ($3 billion outflow of FDI in 2009) and have increased inefficiencies in the system, leading to an increasingly complicated policy mix and capital flight.

The Central Bank of Mexico recently published its monthly private sector survey of expectations (June 2010 edition). Among the highlights included in the latest survey, the market consensus on growth for 2010 now stands at +4.37% year-over-year, up from 4.31% year-over-year in May 2010, and up from the +2.05% year-over-year growth expectation present in January of 2009 (for 2010 growth). We continue to expect Mexico's economy to expand by +6% year-over-year in 2010. On headline inflation, the markets now see the rate finishing 2010 showing an increase of 4.66% year-over-year.