Itaú BBA - Weaker-than-expected retail sales in Brazil

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Weaker-than-expected retail sales in Brazil

Outubro 11, 2019

Despite the result, consumption remains in an upward trend.

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After a strong positive surprise in July, retail sales growth came in below expectations in August. Core retail sales rose 0.1% mom/sa (our call and the market’s: +0.2%), while the broad index (including vehicles and construction material) remained stable (our call: +0.5%; market: +0.6%). On an annual basis, the indicators increased 1.3% and 1.4%, respectively. The breakdown shows that growth diffusion was also weak, as 6 out of 10 retail activities declined in August. Looking ahead, withdrawals from the workers’ severance fund (FGTS) will likely provide a temporary boost to retail sales in the coming months. On the other hand, other major demand components, such as investment and exports, remain weak. ** Full story here.

The traffic of heavy vehicles on toll roads (ABCR) increased 1.5% mom/sa in September. Even though this result was somewhat weaker than our forecast (+1.8%), it is another indication of stronger industrial production in the period. After this print, our forecast for September’s industrial production declined slightly, to 1.0% mom/sa from 1.2%. Overall, our 3Q19 GDP forecast is +0.5% qoq/sa, broadly unchanged after the retail sales and ABCR data released yesterday.

Day Ahead: At 9:00 AM, August’s service sector revenue will be released. We expect a stable seasonally adjusted monthly reading, leading the year-over-year growth rate to -1.0%. Additionally, the IBGE will publish the new weights for the IPCA that will prevail from January 2020 onward, based on the household budget survey (“POF”).


The Central Bank of Peru (BCRP) decided to keep the policy rate at 2.50%, above our forecast (2.25%) and market expectations (as per Bloomberg). The Board seem slightly less dovish on economic outlook, as the statement noted that non-primary economic activity continues to recover, while public investment execution is expected to improve for the rest of the year. Likewise, the Board mentioned a slight improvement in business confidence expectations. Regarding the external environment, the reference to risks on global economy was kept in the statement (due to trade war conflicts), but didn’t mentioned high financial volatility as in the past statement.

Further easing will be data dependent. The BCRP believes that it is appropriate to maintain an expansionary monetary policy and will evaluate new information on inflation and its determinants to adjust the monetary policy stance if necessary. We expect the central bank to cut the policy rate by 25 bps during the last quarter of 2019 (to 2.25%).


The central bank of Mexico (Banxico) published yesterday the minutes of September’s meeting, held two weeks ago, when three out of five members voted to cut the policy rate 25-bp (to reach a rate of 7.75%). The minutes revealed two deputy governors Heath and Esquivel voted for a larger rate cut (50-bp) – the latter argued that core and headline inflation (which are expected to converge to the target), a widespread reduction of global interest rates and weakness in the economy opens space for a larger cut, while Heath argued that there is room to lower the rate further and still keep a restrictive monetary policy stance. However, one of these members (probably Jonathan Heath) warned that the monetary policy adjustment pace will have to weigh the risks to core inflation. On the other hand, board members who voted for a 25-bp cut seem cautious over accelerating the easing pace in the short term. The majority of board members highlighted that maintaining a prudent monetary policy stance is necessary, given the uncertain scenario. Looking ahead, we expect another 25-bp rate cut in November, but we do not rule out that the majority of the board will opt for a larger 50-bp rate cut if core inflation readings available until the meeting show a slowdown. ** Full story here.


According to the results of the central bank’s monthly analyst survey, the easing cycle is still seen ending at 1.75%, but the final cut was brought forward from December to this month. The adjustment in timing is likely due to the minutes of the September meeting (50-bp cut) showing that the board considered a larger cut (75-bps), but opted out mainly on communicational risks, along with the notable downside inflation surprise in the same month. Other data received between surveys had growth surprising to the upside for August. The policy rate is then seen remaining at 1.75% for at least the next 11 months, before a gradual normalization to 2.25% in a two-year horizon (unchanged from the previous survey). Nevertheless, respondents are significantly split between whether an additional cut to 1.5% is required. At its peak, 48% of respondents see the rate at 1.5% or below by early 2020 (5 months’ time), while 46% hold that view for the 11-month outlook. Regarding inflation, the relevant two-year outlook remained unchanged at 3.0%, while the one-year outlook ticked up 0.1 p.p. to 2.9%. After eight consecutive months of downgrades to the 2019 growth forecast, analysts maintained their 2.5% median expectation, likely consolidated by the upside Imacec surprise in August. Meanwhile, the 2020 growth outlook edged down 0.1 p.p. to 3.0%. We see room for two-more cuts to 1.5% (with the first coming later this month), as the wide output gap, global slowdown, and low inflationary pressures support our call.

Car sales continued to decline in September, but at a much milder rate and with some positives at the margin. The National Automotive Association of Chile (ANAC) reported that new car sales retreated 3.4% yoy in September, following the 14.6% drop in August. As a result, new sales fell 6.2% in 3Q19, after contracting 14.4% in 2Q19. Year-to-date, new car sales are 7% down from 2018 (+15.6% yoy). At the margin, car sales showed some turnaround with growth of 8.5% qoq/saar (-14.4% in 2Q19), the first quarterly acceleration since 2Q18. Despite low inflation, steady wage growth and low interest rates, a significant rebound is unlikely given consumer confidence remains firmly downbeat.

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