Itaú BBA - Evening Edition – Interest rate expectations continue to fall in Brazil

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Evening Edition – Interest rate expectations continue to fall in Brazil

July 1, 2019

The median of the Selic rate expectations declined to 5.50%, from 5.75%.

Talk of the Day

Brazil

The BCB released its weekly survey with market participants (Focus). According to the survey, the median of the Selic rate expectations declined to 5.50% (from 5.75% in the previous survey; now at 100 bps below the current 6.50% level) for 2019 and to 6.00% (from 6.50%) for 2020, following Copom’s clear indication that, conditional on concrete progress on the reform front, the monetary authority will resume easing shortly. For 2021, it remained stable at 7.50%. The median of GDP growth forecasts for 2019 printed a slight decline, to 0.85% (from 0.87%). For 2020 and 2021, the median of GDP growth forecasts remained stable at 2.20% and 2.50%, respectively. The median of IPCA inflation expectations oscillated to 3.80% for 2019 (from 3.82%) and declined 4 bps for 2020, to 3.91%. For 2021, inflation expectations remained stable at 3.75%. Finally, the median of exchange rate expectations stands at BRL 3.80/USD for 2019 and 2020, and BRL 3.84/USD for 2021.

The trade balance registered a USD 5.0 billion surplus in June, slightly below our call and market expectations (USD 5.5 billion and BRL 5.4 billion, respectively). The seasonally adjusted annualized moving average rose to USD 52.3 billion in the month (from USD 51.9 billion in May), while the 12-month accumulated surplus fell to USD 56.7 billion (from USD 57.5 billion). All in all, June’s figures showed a lower trade balance at the margin, although the year-to-date reading remains high. For the rest of the year, we expect the trade surplus to virtually match last year's result, with slower export growth (due to deceleration in global growth) offset by weaker imports (due to the weak domestic activity).

Tomorrow’s Agenda: May’s industrial production will be released at 9:00 AM. We forecast a 0.6% decline on seasonally adjusted terms (after a 0.3% increase in the previous month), which would lead the year-over-year growth to 6.5%.

Chile

Business confidence retreated in June. ICARE’s business confidence index decreased to 50.2 (50 = neutral), from 55.1 points one year ago. Business confidence has been below last year’s level for every month of 2019. Industrial confidence remains the main drag, retreating 9.9 points from June last year (43.3 vs. 53.2). Despite decreasing 7.6 points, recording the eighth consecutive month of deterioration, retail confidence remains optimistic (51.3 vs. 58.9 one year earlier). Meanwhile, construction confidence improved 3.5 points, reaching 46.6 (43.1 one year ago), but remains below the optimistic levels recorded earlier this year. Mining confidence remains upbeat, at 65.9 points (from 65.4 in June last year), despite lower copper prices. When the mining sector is excluded, business confidence dropped 6.1 points to 46.5 (52.6 one year ago), recording the lowest level since the end of 2017. Alongside the near-neutral business confidence, depressed consumers, an uncertain global scenario and contained copper prices justify our call for growth of 2.4% this year (4% for 2018).

Argentina

Tomorrow’s Agenda: The central bank will release its monthly expectations survey. We expect no further deterioration of inflation expectations, given the stabilization of the nominal exchange rate.

Colombia

Tomorrow’s Agenda: At 3:00 PM, the central bank will publish the minutes of the decision to hold the policy rate at 4.25% at June’s monetary policy meeting. Despite the decision, we expect the minutes to build on some of the dovish signals we identified in the press communication.



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