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Brazil´s president to meet with party leaders today

April 4, 2019

Bolsonaro will reportedly meet with six or more party leaders throughout the day.

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Local news (Globo) indicates that president Bolsonaro will meet with party leaders in order to improve the political articulation. Five of the parties the president will reportedly meet today (DEM, PSD, PP, PRB and MDB) are among the ones with the highest share of “undecided” lawmakers on the pension reform, according to the latest survey conducted by Atlas Politico (on April 1st). Hence, it will be important to watch the outcome of these meetings closely, to gauge how their positions may evolve throughout the next weeks.

According to Fenabrave, vehicle sales reached 209k in March, rising 4.8% mom/sa (from 1.3% in the previous month). In year-over-year terms, sales increased 0.8%. The breakdown shows a 5.0% increase in “passenger cars + light vehicles”, and stability in “trucks + buses”. We expect auto production (Anfavea), to be released today, to print a 4.5% mom/sa increase (257k). Our preliminary forecast for March’s industrial production is a 0.5% mom decline, which would lead the year-over-year rate to -4.6%.

Macro Vision: Our latest study points to the risk of a slowdown in activity, as indicated by declining business confidence. There is a strong correlation between the Business Confidence Index (ICE, calculated by FGV) and formal job creation (as measured by the Ministry of Economy's CAGED employment registry). The current ICE level is consistent with formal job creation of about 20k per month, according to our estimates. In turn, this pace of job creation is consistent with annual GDP growth of only 0.8%.
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Day Ahead: As stated previously, Bolsonaro will meet with party leaders throughout the day. Regarding economic activity indicators, March’s auto production (Anfavea) will be released at 11:20 AM. We expect a 4.5% mom/sa increase.


Exports improved in February as the drag from oil exports moderated. Total exports grew 6.2% yoy in February, up from the 7.8% drop in January. Coal exports expanded 13.6% (-31.9% previously), the highest growth rate since October 2018, while coffee exports accelerated to double-digit growth. Meanwhile, oil exports recovered to 5.8% (-10.0% previously) as export volumes increased compared to last year, while prices moderated their decline. In the quarter ending in February, exports fell 6.3% (versus +1.6% 4Q18 and +12.0% 3Q18) still dragged down by lower oil prices at the turn of the year and disappointing coal exports. At the margin, total exports contracted 26.3% qoq/saar (-12.0% in 4Q18 and -0.4% in 3Q18), as the acceleration in coal exports was insufficient to fully offset slowing oil exports. The weakening global economy and low oil prices (on average, compared to last year), alongside the gradual activity recovery, have hampered the outlook for external accounts. We see the 2019 current account deficit at 4.0% of GDP (3.8% in 2018). Given wide twin deficits, Colombia is vulnerable to an abrupt deterioration of global financing conditions. The full trade balance result will be released on April 22.


Inflation expectations for 2019 increased sharply, according to the latest central bank survey.  Market participants forecast inflation at 36.0% for this year, up from 31.9% in February (both median value). Inflation expectations for the next twelve months increased to 30.7%, from 29.0% previously. Analysts expect consumer prices to increase by 23.0% in 2020, up from 20.3% in January. Core inflation expectations for 2019 also deteriorated further. Pundits expect core item prices to increase by 35.1% (+5.0 pp over the February survey). Participants adjusted their core inflation projections up to 22.0% for YE20, from 19.1% previously.

In this context, the survey showed that participants expect the yield of Leliqs to hit 45% by end-December, 8pp above the previous survey.

Day Ahead: February’s manufacturing and construction data will see the light at 4:00 PM. We expect to see a new year-over-year drop in manufacturing (-10.8% in January). Construction activity also contracted in the month, according to private indicators like Grupo Construya index (-13.2% yoy).


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