Brazilian politics on the spotlight

The rapporteur of the charges against President Temer in a Lower House committee is expected to release his report today.

Talk of the Day 

Brazil

The rapporteur of the criminal charges against President Michel Temer in the Lower House’s Constitution and Justice Committee is expected to release his report today. The case against Mr. Temer is likely to dominate the debate in the Lower House, and may possibly be voted by the Committee before the end of the week. In the meantime, the Senate is expected to approve the labor reform on Tuesday.

On the macro agenda, the key releases for the week will be May’s retailsales(Wednesday) and the Service Sector Survey (PMS)on the following day. We forecast a 0.1% mom/sa decline in core retail, and a 0.9% drop in the broad segment, which includes vehicle sales and construction material. May’s PMS is also relevant for 2Q17 GDP estimates – we expect the headline to fall 2.3% yoy. ** Read our full week ahead note below.

IPCA prints deflation of 0.23% in June.The figure came in slightly below our call (-0.17%) and the median of market expectations (-0.19%). The biggest deviation from our forecast came from market-set prices in the industrial sector, which more than offset the higher-than-expected print for services. The IPCA had climbed 0.31% in the previous month and 0.35% in June 2016. In the first half of 2017, the IPCA has climbed 1.18%, far below the 4.42% reported during the year-earlier period. According to the IBGE, this was the lowest year-to-date rate for the first semester since 1994. The year-over-year IPCA rate retreated to 3.00% after reaching 3.60% in May. Breaking down by product groups, the downward contribution during the month came from housing (-0.12 p.p.), food and beverages (-0.12 p.p.), and transportation (-0.09 p.p.). On the other hand, the biggest upward contribution came from healthcare and personal care (0.05 p.p.), with the biggest impact coming from insurance plans.

Our preliminary estimate for the IPCA in July is for an increase of 0.18%, which will lead to a new decline in the year-over-year rate, to 2.7%.The biggest contribution to the increase will come from electricity, reflecting the activation of the yellow flag at the beginning of the month, as well as the tariff adjustments at some utilities with a relevant weight in the IPCA. On the other hand, the transportation group is likely report negative rates for the fifth month in a row due to new declines in the price of fuels. ** Full story here.

Paper cardboard dispatches (ABPO) rose 0.2% mom/sa in June (our seasonal adjustment), up 2.4% yoy. It is one of the two most important coincident indicators for industrial production (the other is traffic of heavy vehicles). The result is better than other industrial production coincident indicators already released, so we raised our industrial production forecast to -0.2% mom/sa in June (before ABPO’s release: -0.8%).

The Serasa Experian Index for Retail Activity rose 1.2% mom/sa in June (official seasonal adjustment), following a 0.6% increase in the previous month. The index shows a gradual increase year-to-date, following stable figures through 2016 and a steep decline in 2015. The breakdown shows declines in supermarkets (-0.4%) and “apparel” (-2.1%), and positive figures for the other components. Combining with other indicators, our preliminary forecasts for June core and broad retail sales stand at -0.1% and 1.7% mom/sa, respectively.

The BCB called a rollover auction of up to 8,300 FX swaps for today. If this pace is maintained throughout the month, the Central Bank will have rolled over the entire lot due in August (USD 6.2 billion).

Fuente: ITAU

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