Bottom-line: We think the CB will be reluctant to tighten too quickly or aggressively after such a dramatic plunge during the still-recent global crisis and risk adversely affecting trend growth (especially in an election year). Brazil is recovering, and fast, but we do not see the risk here as yet of economic overheating. We expect 50bp hikes in each quarter starting with the second, for a total of 150bps this year as inflation remains within the target range, and excess slack continues in the economy (albeit decreasing).

More relevant for the markets, the official data shows that if 2010 proves to be a year in which no major economic "black swans" come about, then the Mexican economy could expand by 6% year-over-year in 2010. We see Mexican industry rebounding by 7.9% year-over-year in 2010 after having contracted an estimated -10.5% year-over-year in 2009. We continue to forecast that the MXN/USD will finish 2010 at $11.5/USD, we still expect the Central Bank to remain on hold during 2010 because the massive output gap will keep demand pressures subdued, and we expect international accounts to (relative value) long the Mexican Bolsa aggressively during 2010.

We think that this sell-off will be short-lived as see value at such levels for the CLP. We expect an appreciation back to 500/USD and maintain our call for CLP/USD at 500 by year-end 2010. The economy is in full recovery mode, unemployment on the decline, copper production increasing, and demand from Chile's main trading partners is back. Meanwhile, after the election of Mr. Piñera, further market-friendly policies can be expected and continued investor interest in this strong macroeconomic and stable story.

In our view the economic indicators show unequivocally that the US is solidly recovering, which should be positive for global markets. Nonetheless, today the market is down, USTs are rallying along with the USD, commodities are down, all despite the strong US economic data. This comes in part as some technology company earnings disappointed the high expectations of the street, weighing on the markets and playing a part in counter-acting the strong GDP numbers and the re-nomination of Bernanke yesterday.