Itaú BBA - Evening Edition – Seasonally-adjusted formal job creation remained positive in Brazil

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Evening Edition – Seasonally-adjusted formal job creation remained positive in Brazil

January 23, 2019

Going forward, we expect the improvement in financial conditions since October to continue supporting the formal labor market

Talk of the day
 

Brazil

CAGED registered a net destruction of 334.5k formal jobs in December, in between our call (-314k) and the market’s (-344k). It’s worth noticing this apparent weak headline is due to a strong seasonality in the month. Seasonally-adjusted, 55k formal jobs were created in December, taking the 3-month moving average to 66k (from 72k in the previous month). In 2018, the Brazilian economy created 529,554 jobs (the highest print since 2012). The sectorial breakdown shows significant gains in the services, retail and civil construction sectors, while the manufacturing sector remained flat. Going forward, we expect the improvement in financial conditions since October to continue supporting the formal labor market. 
 

According to FGV’s industry survey preview, business confidence in the industrial sector rose 2.0pp to 97.6 in January. The breakdown shows a steep increase in expectations (4.7 pp), while current conditions rose slightly by 0.4pp. Despite the increase, the index remains below levels seen in 2Q-3Q18 and is still underperforming confidence in other sectors (retail, services, construction) since the electoral outcome. The preview of the capacity utilization (NUCI) fell further by 0.3pp to 74.5, highlighting that the improvement in confidence was driven by expectations while current conditions remain lackluster. Looking forward, we expect the improvement in financial conditions since October to boost industrial production (and confidence indexes related to current conditio ns). The final survey will be released on January 29.

The mid-month consumer price index IPCA-15 rose 0.30% in January, printing somewhat below our estimate and the median of market expectations (both at 0.35%). Industrial prices were behind the biggest deviation from our call, with weaker results for apparel and personal care items. Food and beverages (0.22 p.p.), healthcare and personal care (0.08 p.p.), and personal expenses (0.05 p.p.) provided the largest upward contributions during the month. In the opposite direction, transportation gave a downward contribution (-0.09 p.p.), still reflecting falling fuel prices. Our preliminary forecast for the headline IPCA in January is a 0.40% increase, lifting the year-over-year rate to 3.86%.
** Full story.

Colombia

According to think-tank Fedesarrollo, industrial confidence was still in pessimistic territory (below zero) in December, but improved to -1.1%, from the -4.8% one year earlier and the -4.3% in November. Compared to December 2017, there was an important advancement in the volume of orders, moving from -30.6% to -17.9%, while expectations for production in the upcoming quarter remained optimistic, improving 0.8pp to 13.5%. Despite the weakening of the Colombian peso, lower oil prices are likely weighing on Industrial confidence. Meanwhile, retail confidence remains deep in optimistic territory at 29.3% (21.4% in December 2017 and 28.0% in November), likely boosted by low inflation and the monetary stimulus in place. A considerable improvement in expectations of the economic situation in the coming semester (45.0% vs. 36.2% in December 2017) and lower inventories drove retail confidence advancement over twelve months. We forecast activity ticking up to 3.3% this year, from 2.6% expected for 2018. However, lower oil prices and slowing growth for major trade partners will limit the recovery. 

The coincident activity indicator (ISE) in November came in well below expectations. The original series grew 2.2% yoy, similar to the 2.3% recorded in October, but inferior to our 3.6% expectation and the market consensus of 2.9%. A higher reading was expected following the strong sector data (retail sales: 10.8% yoy; manufacturing: 4.7% yoy). Growth in the quarter ending in November was 2.3% yoy (2.7% in 3Q18 and 2.8% in 2Q18). Nevertheless, the rolling 12-month growth rate ticked up to 2.7%, from 2.1% as of June and 1.8% in 2017. At the margin, activity fell 2.3% qoq/saar (+1.0% in 3Q18 and +0.8% in 2Q18) as the tax reform discussion and falling oil prices likely affected private sentiment. The still widening output gap, alongside controlled inflation reaffirm our view that the central bank would be in no rush to start removing the mild monetary stimulus in place. Hence, no rate move at next week’s monetary policy meeting is expected. Overall, we expect activity growth to improve this year, but headwinds are brewing. Lower oil prices and slowing growth for major trade partners will limit the recovery. We forecast activity ticking up to 3.3% this year, from 2.6% expected for 2018.

Argentina

The trade balance posted a surplus of USD 1.4 billion in December, exceeding market expectations (USD 1.2 billion surplus). The full-year 2018 trade deficit came in at USD 3.8 billion, narrower than the USD 8.3 billion deficit posted in 2017. Adjusted for seasonality, the annualized 4Q18 balance reversed to a USD 10.5 billion surplus, from a USD 5.0 billion deficit in 3Q18.

We expect a current account deficit of 1.2% of GDP in 2019, compared with an estimated 4.4% of GDP in 2018, due to the weak currency, subdued internal demand and the normalization of soy output. We expect the current account deficit in 2019 to be mostly financed by IMF disbursements.
** Full story
here.

Tomorrow’s agenda: The INDEC will publish the EMAE (official monthly GDP proxy) for November at 5:00 PM (SP Time). According to leading and coincident indicators, the recession deepened that month. The IGA (GDP proxy published by OJF consulting firm) fell 6.5% yoy (-3.8% in October), industrial output dropped 13.3% yoy (-6.8% in the previous month) and construction activity plummeted 15.9% yoy, after falling 6.4% in October. We expect activity to post a 7.4% yoy contraction in November.

Mexico

Tomorrow’s agenda: INEGI will publish CPI inflation figures for the first half of January at 12:00 PM (SP Time). We expect bi-weekly inflation to post 0.18% (from 0.24% a year ago). Assuming our forecast is correct, headline inflation would be 4.60% yoy (from 4.66% in the second half of December). At the same time, INEGI will publish November’s monthly GDP proxy IGAE, which we expect to slow to 1.1% yoy (from 2.9% in October).



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