Itaú BBA - Evening Edition – Brazilian Lower House still voting on amendments to the pension reform

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Evening Edition – Brazilian Lower House still voting on amendments to the pension reform

July 11, 2019

Last night, the House concluded the first round of voting on the base text, with 379 votes in favor and 131 against the proposal.

Talk of the Day

Brazil

The Lower House is currently voting the amendments (“destaques”) to the pension reform. Last night, the House concluded the first round of voting on the base text, with 379 votes in favor and 131 against the proposal, while the surveys were pointing to 330-350 votes, a surprisingly strong margin. The amendments that are now under assessment are essential to gauge the fiscal impact of the final reform. After these measures are voted, the bill will follow to the second round of voting, which, according to the House Speaker, Rodrigo Maia, is a step that may be concluded by tomorrow.

Retail sales point to moderate consumption growth in May. Broad retail sales grew 0.2% seasonally-adjusted in the month, slightly weaker than market expectations (0.3%) and our forecast (0.4%), while core retail sales declined 0.1%, also below market expectations (+0.1%) and our call (+0.2%). Compared to May 2018, the core indicator climbed 1.0% yoy, while the broad indicator increased 6.4% yoy. According to the breakdown, out of 10 broad retail components, six advanced in May on a seasonally-adjusted monthly basis. Vehicles showed the steepest decline (-2.1%). On a quarterly basis, broad retail sales rose 1.5%, while core retail sales remained stable. The reading is consistent with our view of moderate growth in household spending in 2Q19. ** Full story here.

Paper cardboard dispatches declined 2.2% mom/sa in June, extending its downward trend. This release is important for our industrial production forecast, which now stands at -1.1% mom/sa in June, indicating that economic activity remains soft in 2Q19.

Tomorrow’s Agenda: May’s service sector revenue survey will be released at 9:00 AM, for which we forecast a 0.5% mom/sa decline, leading the year-over-year rate to a 3.5% growth. 

Mexico

The central bank of Mexico (Banxico) published the minutes of June’s meeting. Held two weeks ago, four out of five board members voted to leave the policy rate unchanged at 8.25%. As widely expected, deputy governor Gerardo Esquivel was the member who voted for a 25-bp cut, arguing that inflation is in a convergence path to Banxico’s inflation target. Moreover, the change of the monetary policy stance of central banks in the developed world and the greater economic activity slack warranted a 25-bp cut, according to him. The minutes show there are divisions even within members who voted to leave the policy rate unchanged. Two board members are not open to cut rates until inflation shows a clear trend towards the central bank target. On the other hand, two members (one of them likely being Esquivel) hinted that Banxico should react to a rate cut by the Fed, which is likely to happen in July, to prevent further monetary conditions’ tightening. The majority of board members mentioned it is essential that core inflation resumes its downward trend. Overall, the minutes suggest higher odds of the central bank cutting rates in 3Q19. Although two votes for a rate cut are likely in August meeting, the minutes suggest core inflation needs to fall before the majority of board members feel comfortable in starting an easing cycle. ** Full story here.

Tomorrow’s Agenda: The Statistics Institute (INEGI) will publish May’s industrial production at 8:00 AM, which we estimate decreased 0.6% yoy (from -2.9% in April).



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