Itaú BBA - Evening Edition – Stronger-than-expected retail sales in Brazil

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Evening Edition – Stronger-than-expected retail sales in Brazil

September 11, 2019

Credit-linked sales continue to grow faster than income-sensitive ones, given the slow-paced employment recovery.

Talk of the Day


Retail sales growth beat expectations by a wide margin in July. Broad retail sales rose 0.7% mom/sa, higher than our forecast of 0.1% and market expectations of -0.6%, while core retail sales climbed 1.0% (Itaú: +0.5%; market: +0.2%). On an annual basis, the indicators increased 7.7% and 4.4%, respectively. Looking at the breakdown, the outcome was also positive, as out of 10 activities, 8 advanced in July. Only “vehicles, motorcycles and parts” (-0.9%) and “office equipment and supplies” (-1.6%) experienced declines. Credit-sensitive retail sales continue to grow faster than income-sensitive sales — the latter had been surprisingly weak in recent months, but rebounded in July, and the annual growth pace became more consistent with the real wage bill. Overall, we still see consumer spending outperforming investment, which has yet to show recovery signs. July’s figures reinforce this trend, as retail sales continue to expand while investment numbers remain stagnated, as indicated in the industrial production report for July. For August, available coincident indicators point to a drop in the core retail index (-0.2% mom/sa) and an increase in the broad index (+0.4% mom/sa). ** Full story here.

Tomorrow’s Agenda: At 9:00 AM, July’s service sector revenue will be released. We expect a 0.1% mom/sa increase, leading the year-over-year growth rate to 0.4%.


Industrial production decreased 1.7% yoy in July, slightly above our forecast and market expectations of -1.8%. According to calendar adjusted figures, industrial production fell at a sharper pace (2.8% year-over-year in July, from 2.1% in June), taking the quarterly rate to -2.7% in July (from -1.9% in June). At the margin, industrial production contracted 0.4% mom in July (from 1.1% in June), dragged by mining and construction output. Looking forward, the numbers highlight downside risk to our GDP growth forecast of 0.6% for 2019. Weak economic activity in the U.S. is dragging down Mexico’s manufacturing sector. Uncertainties over the direction of domestic policy and trade relations with the U.S. are also expected to continue to weigh on investment. Moreover, the government-transition effect on fiscal spending should gradually fade in 2H19, but austerity measures continue to pressure economic activity downward. However, recent inflation-adjusted wage increases are a buffer for the economy, sustaining the real wage bill and smoothing the consumption slowdown. ** Full story here.


Car sales slumped in August. The National Automotive Association of Chile (ANAC) reported that new car sales retreated 14.6% yoy in August, the largest drop since August 2015 (from +0.6% in July and -14.4% in June). In the quarter ended in August, sales fell 9.9%, after contracting 14.4% in 2Q19. At the margin, car sales retreated 2.6% qoq/saar, (-14.4% in 2Q19). Weakening car sales signal feeble durable consumption which, alongside a widespread fall in imports and disappointing industrial exports, would result in a soft reading of the GDP proxy (Imacec) for August, and corroborates our forecast of 2.2% GDP growth this year (4% in 2018).


Tomorrow’s Agenda: At 4:00 PM, the INDEC will publish the National CPI for August. The monthly increase in consumer prices is estimated at 4.2% (by Elypsis consulting), leading the year-over-year reading to 54.9% from 54.4% in July.


Tomorrow’s Agenda: At 8:00 PM, the Central Bank of Peru (BCRP) will publish its September’s decision on the reference rate, which we expect to remain on hold at 2.50%. We expect the Board to evaluate further economic information before adjusting again its monetary policy stance. Still, low inflation, together with interest rate cuts by the Fed and weak activity, increases the odds of the BCRP cutting the policy rate further in the short-term. Thus, we expect another 25-bp rate cut before yearend.

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