EM LATAM CREDIT: Ecuador: Elimination of Fuel Subsidy - Positive
(ECUA; Caa3/B-/CCC+)
Previous administrations have attempted and failed to eliminate the expensive fuel subsidy first started about 50 years ago. This time we think it might succeed as the reason for the cutting of the subsidy is not just to save money but because of the fuel trafficking that is allegedly occurring so the government will pay transport drivers directly as well as divert savings to social programs as well.
It is the usual suspects leading the charge of the protests. Recall that Leonidas Iza, leader of the powerful indigenous people's party (CONAIE) won 5% of the vote in the primary presidential election and then later threw his support behind left leaning Correa protege Luisa Gonzalez. CONAIE has led the protests in the past efforts to eliminate the fuel subsidy.
ECUA 35s rallied on the news of the subsidy cut earlier in the week, hitting a more than 5 year high of 79.5 on Monday, but then retreated to now quoted 78.18 in the wake of protests that in the past have succeeding in blocking the cut in the subsidy.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
EURIBOR OPTIONS: ERZ5 98.50 Calls Lifted Again
ERZ5 98.50 calls paper paid 0.75 on another 10K.
US TSY OPTIONS: Sep'25 5Y Ratio Put Fly
- 4,000 FVU5 107.75/108/108.5 2x3x1 put flys, ref 108-22.5
EUROZONE DATA: Trade Surplus Slips Further As Irish Pharma Surge Dries Up
- The Euro area goods trade surplus was smaller than expected in June at E7.0bln (cons E14.5bln).
- It saw the seasonally adjusted equivalent fall to just E2.8bln after E15.6bln in May for the lowest monthly surplus since May 2023.
- It’s an abrupt further narrowing in surpluses from the E15.0bln averaged in Apr-May and E20.5bln in Q1 (including E27.7bln in March) compared to a more typical E11.6bln in Q4.
- Alternatively, it left a goods trade surplus at ~0.8% GDP in Q2 after 1.6% GDP in Q1 and 0.8% GDP in Q4, with that 2Q25 estimate biased higher by figures earlier in the quarter.
- The narrowing came from a combination of a third consecutive monthly decline for exports (-2.4% M/M) whilst imports firmed (3.1% M/M).
- Export weakness was driven by manufactured goods shipments fell by -4.2% on a -13.2% decline in chemicals & related products likely owing to Irish pharmaceutical exports to the US.
- The more detailed NSA data show that Irish pharmaceutical exports to the US registered an unusually small E1.8bln in June (smallest since Sep 2023) after E8.7bn in May. It’s continued payback from a surge in Q1 when exports summed to E39bln vs the E44bln through 2024 as a whole. As such, it may not necessarily be surprising but it’s still notable and could see similarly small readings ahead.
- Back to the swda data, imports strength looks particularly concentrated meanwhile, with the commodities & other unclassified category surging 148% (from E2.8bln to E7.1bln) and a 7% rise in chemicals & related products (from E30.2bln to E32.3bn).
- As for somewhat more forward-looking indicators of domestic demand, imports of machinery & transport equipment increased a modest 2.2% M/M considering it followed a cumulative -3.6% decline in April and May. It left them up 4.6% Y/Y on this calendar adjusted basis for one of the faster readings in recent years but still relatively tepid for a nominal measure.
