Itaú BBA - Industrial business confidence preview points to noteworthy improvement in January

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Industrial business confidence preview points to noteworthy improvement in January

January 24, 2017

The preview points to a 3.7% increase in confidence in January, above our expectations (+2.0%).

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Brazil

Industrial business confidence (FGV, preview) for January points to a 3.7% increase in confidence month-over-month seasonally adjusted, above our expectations (+2.0%).Both the current situation and expectations components registered increases in the month (3.5% and 3.9%, respectively). Confidence shows signs of stabilization on the margin, though at levels significantly higher than the ones seen in 2016. The preview also indicates an increase in capacity utilization of 0.9 percentage points. We expect confidence to improve over the coming months. The final industrial business confidence number (FGV) will come through next Tuesday (Jan 31st).

The Central Bank’s balance of payments report will hit the wires at 10:30 AM (SP time).We expect the current account to post a deficit of USD 4.8 billion in December, above the USD 2.4 billion observed in December last year when a strong trade surplus was fueled by an oil rig export. Year-over-year, the services and income deficits are also likely to increase. In 2016 as a whole, the current account deficit is expected to reach USD 22.6 billion, down from USD 59 billion in 2015. The strong adjustment in the external accounts last year was mainly due to slower economic activity. For the next few years, we forecast a growing current account deficit, though without compromising external sustainability. Direct investment in the country (DIC) is expected to total USD 9.0 billion in December. If this result is confirmed, DIC will amount to USD 73 billion in 2016 (slightly below USD 75 billion in 2015).

The BCB’s Focus report reveals a new round of downward revisions to the Selic rate for the years ahead. Yearend Selic median expectations dropped to 9.50% (from 9.75%) for YE17, to 9.38% (from 9.50%) for YE18, and to 9.00% (from 9.25%) for YE19. Importantly, 2017 IPCA inflation expectations diminished to 4.71% (-9 bps). Forecasts remain anchored at the 4.5% inflation target for 2018 onwards.

The BCB allotted USD 750 million in regular FX swaps. After closing, the BCB called a rollover auction of the same size for today.  



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