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Evening Edition – Job creation below expectations in Brazil

June 27, 2019

The 3-month moving average decreased to 13k, from 26k in the previous month.

Talk of the Day


CAGED formal job creation came in at 32k in May, below both our forecast (55k) and market expectations (66k). According to our seasonal adjustment, formal job creation reached 3k in May, taking the 3-month moving average to 13k, from 26k in the previous month. Looking forward, the current level of the overall business confidence does not indicate an acceleration of job creation ahead, despite the small improvement at the margin registered in some sectors.

An Ibope poll on president Bolsonaro’s approval rate was published today. According to the survey, 32% of the sample consider his administration as “good” or “excellent” (from 35% in the previous survey, conducted in April), while another 32% evaluate it as “bad” or “horrible” (from 27%).

According to FGV’s monthly industry survey, business confidence in the industrial sector decreased 1.5 p.p. to 95.7 in June. The breakdown shows a drop both in the expectations component (-1.1 p.p.) and in the current situation index (-1.9 p.p.). Capacity utilization in the sector (NUCI) decreased 0.3 p.p., to 75%. The print is broadly in line with the preview released last week, in which industrial confidence fell 1.4 p.p., but goes against the rebound registered in the consumer, retail and construction confidence indicators in the same period.

The BCB released its quarterly inflation report today. June’s report shows inflation forecasts consistent with Selic rate cuts in 2019, although they do not corroborate the view of that interest rates can be maintained at the new record low level in subsequent years. In fact, forecasts that consider the Focus survey trajectory for the Selic rate (which incorporate rate cuts in 2019 and increases in 2020 and 2021) show inflation slightly below the target in 2020 and slightly above the target in 2021. We believe that these estimates corroborate our expectation that the Copom will restart an easing cycle of monetary policy with a cut of 0.25 pp at the meeting on July 30 and 31, provided there is concrete progress in the reform agenda until then. ** Full story here.

Tomorrow’s Agenda: At 8:00 AM, FGV’s services confidence index for June will be released. On economic activity, May’s PNAD national unemployment rate will come in at 9:00 AM, which we forecast at 12.3% (stable at 11.9% in seasonally adjusted terms). On the fiscal front, May’s consolidated primary budget balance for the public sector will come in, for which we expect a BRL 14 billion deficit.


Banco de Mexico (Banxico) kept the policy rate at 8.25%, in line with our expectations and market analysts. The decision wasn’t unanimous, as one board member (likely Deputy Governor Esquivel, who had already been calling for a more neutral stance in central bank’s official documents) voted in favor of cutting the policy rate by 25 basis points. Furthermore, the statement adopted a more neutral tone relative to the previous decisions, as it no longer mentions that the balance of risks for inflation is tilted to the upside (although it says that a high degree of uncertainty over risks for inflation persists). The balance of risks for economic activity has become more uncertain and its downside bias has increased. 

We expect Banxico to deliver two 25-bp rate cuts in the last quarter of 2019. Rate cuts in the short term are still unlikely, considering the level of both inflation and core inflation and risks surrounding the inflation outlook. However, this decision’s statement contains, in our view, changes in communication necessary before rate cuts are delivered. In this context, the probability of our baseline scenario (rate cuts starting this year, with two 25-bp rate cuts in 4Q19) has increased. ** Full story here.

On external accounts, trade balance narrowed and surprised to the upside in May. Monthly trade balance posted a USD 1.0 billion surplus in May, above our forecast of USD 0.5 billion deficit and median market expectations (USD 1.0 billion deficit) – taking the 12-month rolling deficit to USD 9.5 billion in May (from a deficit of USD 12.1 billion in April). The breakdown shows that, using 12-month rolling figures, the energy deficit deteriorated slightly, while non-energy balance improved, posting a surplus of USD 14.5 billion. At the margin, using 3-month annualized seasonally adjusted figures, the trade balance improved to a surplus of USD 3.3 billion in May (from USD 1.3 billion deficit in April), with the energy deficit deteriorating to USD 23.3 billion (from a deficit of USD 20.6 billion), while the non-energy surplus improved to USD 26.5 billion (from USD 19.2 billion). As oil production doesn’t seem to be stabilizing yet and the deceleration of the U.S. economy will exert downward pressure on Mexico’s manufacturing export growth, we expect the trade deficit to remain broadly stable between 2018 and 2019. However, uncertainty over domestic policies and trade relations with the US will likely curb internal demand. ** Full story here.


The current account balance posted an important adjustment in 1Q19. The deficit narrowed to USD 3.8 billion in 1Q19, from a deficit of USD 9.4 billion in the same quarter of 2018, although it was wider than market expectations (USD 2.7 billion). As a result, the four-quarter rolling deficit came down to USD 22.0 billion (4.4% of GDP), from USD 27.5 billion (5.3% of GDP) in 2018. At the margin, we estimate that the seasonally-adjusted current account deficit in 1Q19 reached 2.6% of GDP.

Also on external accounts, the trade balance posted a record surplus in May. The trade surplus reached USD 1.4 billion, compared with a deficit of USD 1.3 billion in the same month of 2018. The surplus exceeded both our and market expectations (USD 1.0 billion and USD 1.1 billion, respectively). The 12-month trade balance doubled to USD 5.2 billion, from USD 2.6 billion in April. The three-month seasonally-adjusted and annualized surplus reached USD 13.1 billion, up from the USD 10.6 billion registered in the quarter ended in April. We expect a trade surplus of USD 7.5 billion for 2019 (from a USD 3.8 deficit last year), with a major narrowing of the current account deficit to 1.2% of GDP. For 2019, we expect a trade surplus of USD 7.5 billion (from a USD 3.8 deficit last year), with a major narrowing of the current account deficit to 1.2% of GDP. ** Full story here.


According to think-tank Fedesarrollo, both industrial and retail confidence remained in optimistic ground in May, with former consolidating its recovery, while the latter fell over the twelve month period for the first time since February 2018. Industrial confidence came in at 7.1% in May (0 = neutral), 6.6pp higher than one year ago (4.4% in April). The improvement from May 2018 was mainly explained by the rebound in the expectations for production in the upcoming quarter (36.6% vs. 29% one year ago) and a less disappointing view of order volumes (-16.7% vs. -25.5% last year). Regarding investment, most respondents saw the economic climate being unfavorable. On the other hand, retail confidence came in at 26.3% in May (0 = neutral) from 27.0% one year ago (29.7% in April). The drop was due to higher inventory levels. Going forward, a weak labor market amid elevated global uncertainty would likely prevent a notable growth improvement and contain confidence levels. We see GDP growth of 2.6% this year, broadly unchanged from last year.

Tomorrow’s Agenda: At 12:00 PM, the institute of statistics will release the unemployment rate for May, which we expect to come in at 10.90%.


Tomorrow’s Agenda: The national institute of statistics (INE) releases industrial activity indicators for May at 10:00 AM. We expect a 1.0% manufacturing growth (-1.4% in April) in the month. At the same time, INE releases the national unemployment rate for the quarter ended in May, which we forecast at 7.1%, 0.1pp above last year.

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