JPMorgan On Castillo Inauguration - Between A Rock And A Hard Place

JPMorgan: President Castillo seems to be in between a rock (Peru Libre's agenda) and a hard place (an opposition-led Congress).

• The best manner to lay down the overall objectives is to summarize the political guidelines of the party, as expressed by Secretary General, Vladimir Cerrón: to draw up a new Constitution, renegotiate some contracts, and establish sovereign control of natural resources.
• With regards to the Cabinet conformation, Castillo hinted at moderation, stating he is speaking with all political forces willing to establish a dialogue. Castillo's stance is a positive, but the message from the party seems clear: the party is to support Castillo if he follows the established priorities.
• The ability of the Congress to block Peru Libre and Castillo's agenda was shown yesterday, when lawmakers elected Alva, from the Accion Popular, as Congress President. The ballot spearheaded by Alva was elected with 69 votes, while another 10 votes went for the Renovacion Popular candidate.
• *Note the opposition is thus only 8 votes short of the 87 threshold, the 2/3 majority required to impeach a president, for example. Also, 79 votes is enough of a blocking majority when entertaining any sort of constitutional reform, in particular via an Assembly as Peru Libre fancies.
• In JPM's view, the path of least resistance amid the prevailing political restrictions calls for moderation.
• They wait for the Cabinet appointment to revise GDP and fiscal forecasts, but the persistent impact of uncertainty in the sol prompts us to revise July inflation higher to 0.55% m/m.