Latam Talking Points


The Central Bank just announced that it will start today the rollover of FX swap contracts expiring in June 1st. If this pace is maintained throughout the month the BCB will auction USD 2.8 billion more than the amount expiring in June (USD 5.7 billion). The Central Bank released a statement explaining that this decision is to smooth movements in the FX market.

The trade surplus reached $6.1 billion in April, slightly below our estimate ($6.3 billion) and in line with market consensus ($6.15 billion). The trade balance over 12 months shrank to $66 billion, and the seasonally-adjusted annualized quarterly moving average receded to $70 billion from $73 billion, driven by stronger imports at the margin. Exports totaled $19.9 billion, virtually unchanged vs. the previous month in seasonally-adjusted terms. Imports totaled $13.8 billion, rising 4.3% mom/sa. Compared to April 2017, exports dropped 3.4%, but imports climbed 10.3%.

April figures continued to show a large trade surplus, notwithstanding the small decline at the margin. Exports remain high, but imports started to increase, although are still at historically-low levels. We maintain our expectation of smaller trade results than in 2017 in the next years due to the rebound in economic activity. ** Full Story here.

According to Fenabrave, vehicle sales reached 217.4k in April, rising 4.9% mom/sa (our seasonal adjustment). This result maintains the positive trend shown by vehicle sales: the 3-month moving average (seasonally adjusted) rose 4.1% in April. The breakdown shows both “passenger cars + light vehicles” and “trucks + buses” rising (5.0% and 1.4% mom/sa, respectively), according to our seasonal adjustment. The yoy growth figure stands at 38.5%, likely affected by additional working days in April 2018 (21) vs April 2017 (18). The working days difference will probably affect all incoming economic activity hard data. Our forecast for April auto production (Anfavea, to be released May 4th) is 263.3k (37.2% yoy, 8.1% mom/sa).

According to a nation-wide poll conducted by Paraná Pesquisas, Jair Bolsonaro (PSL) would lead the presidential race in a scenario in which Lula  does not run. In such a scenario, Jair Bolsonaro would have 20.5% of voting intentions, followed by Marina Silva (REDE, 12%) and Joaquim Barbosa (PSB, 11%). Ciro Gomes (PDT) would have 9.7% of voting intentions, Geraldo Alckmin (PSDB, 8.1%), Álvaro Dias (PODE, 5.9%), Fernando Haddad (PT, 2.7%), Manuela D’Ávila (PCdoB, 2.1%), Michel Temer (MDB, 1.7%), and Flávio Rocha (PRB, 1%). In a scenario with Lula running for the presidency, the former president would have 27.6% of voting intentions, followed by Jair Bolsonaro (PSL, 19.5%), Joaquim Barbosa (PSB, 9.2%) and  Marina Silva (REDE, 7.7%). Geraldo Alckmin (PSDB)  would have 6.9%, Ciro Gomes (PDT, 5.5%), Álvaro Dias (PODE, 5.4%), Manuela D’Ávila (PCdoB, 1.2%) and Michel Temer (MDB, 1.1%).

Day Ahead: March’s industrial production will be released at 9:00 AM (SP Time). We forecast a 0.8% mom/sa increase (consensus: 0.5%).


Business confidence stayed optimistic for the fourth consecutive month in April. Icare’s index came in at 54.4 points (neutral = 50), 10.3 points higher than in April last year (54.3 in March). After spending one month in optimistic ground in March, the construction sub-index returned to pessimistic territory (48.4). Nevertheless, it is still more than 26 points higher than the level recorded one year earlier. The three remaining sub-indexes continued above 50 points. Retail confidence is at 61.1 points, the most optimistic sub-index (51.1 last year April; 61.9 in March) as low inflation, expansionary monetary policy and some labor market improvement likely kept the mood upbeat. Industrial confidence increased nearly 12 points over the 12-month period to reach 52.7. The volatile mining component came in at 54.9 points, below the 62.2 one year earlier, but higher than the 50.1 in March. Excluding mining, total business confidence was broadly stable from March at 54.3 points, but above the 39.9 recorded last April. We expect strong external demand, high copper prices, low interest rates and low inflation to aid confidence and support an activity recovery this year. We see GDP growth of 3.6% this year, more than doubling the 1.5% posted last year.

Day Ahead: At 6:00 PM (SP Time), the central bank will publish the decision of its two-day monetary policy meeting (May 2-3). We and the consensus expect the board to leave the monetary policy rate unchanged at 2.5%. The statistics institute (INE) will publish the private consumption activity indicators for March at 9:00 AM (SP Time). We expect the commercial activity index to have expanded 4.8% from last year as retail sales grow 4.3% (consensus: 4.7%).


After achieving all the targets set in the fiscal consolidation plan for 2017, Mexico’s fiscal deficit indicators widened a bit in 1Q18 (mainly because of an increase in expenditures) although debt-to-GDP ratios continued trending down. In order to have a cleaner picture of the situation of fiscal accounts, we net out the big dividend received from the Central Bank in March 2017 (MXN 322 billion, 1.6% of GDP, the outcome of exchange rate gains on international reserves) and also in previous years (2016, 2015 and 2009). Specifically, excluding 70% of the dividend in the time series of the 4-quarter rolling primary balance and the 4-quarter rolling nominal public balance (because the remaining 30% is directed to stabilization/sovereign funds, and therefore recorded as both revenues and expenditures), the former decreased to a MXN 51 billion deficit in 1Q18 (0.2% of GDP, from a MXN 79.6 billion surplus in 4Q17) and the latter widened to a MXN 639 billion deficit  (2.7% of GDP, from a MXN 464 billion deficit) during the same period. Likewise, using an equivalent ex-dividend measure, the rolling 12-month public sector borrowing requirements (PSBR) – that is the broadest deficit indicator – narrowed slightly to MXN 579 billion (2.5% of GDP) in 1Q18 from MXN 555 billion in 4Q17. We note that for the PSBR, the ex-dividend measure excludes 100% of the dividend (in contrast to 70% for the primary and nominal public balances) considering that the PSBR improves by the full amount of these windfall revenues. Importantly, the nominal public deficit widened more than the PSBR in 1Q18 largely because of the so called “Adefas” (deferred payments of liabilities accrued in the previous year) which reflected transfers to stabilization funds (i.e.: savings improving PSBR). Meanwhile, the public sector’s gross and net debt to GDP ratios continued decreasing to 44.4% of GDP in 1Q18 (from 47.3% of GDP in 4Q18) and 43% of GDP (from 46.4% of GDP), respectively, during the same period.

2018 will mark the final year of the Mexican government’s fiscal consolidation plan. The government’s fiscal targets for 2018 are: PSBR of 2.5% of GDP, nominal public deficit of 2%, and a primary surplus of 0.8% of GDP. Granted, these fiscal targets imply further consolidation; however, at a lower cost for activity than in the previous year (as the bulk of the budget cuts have already been made).


Peru’s inflation dynamics remain weak. The CPI posted a -0.14% month-over-month variation in April, significantly below our forecast and median market expectations (both 0.05%, as per Bloomberg). The downward pressure was exerted by falling food prices (mainly chicken and fruits) and a sharp decrease of inter-provincial bus fares (payback from the spike recorded in March during the Easter holidays). Headline CPI inflation, nevertheless, increased slightly to 0.48% year-over-year in April (from 0.36% in March); although core inflation (CPI ex food and energy) decreased (to 1.91% year-over-year, from 1.99%) during the same period. At the margin inflation was also weak, considering that the seasonally-adjusted 3-month annualized variation of the CPI fell to 0.96% (from 1.53% in March) while the same measure for the core index stood unchanged at 1.88% (below the Central Bank’s 2% target). Looking ahead, we expect annual CPI inflation to increase to 2.2% by the end of 2018 pushed up by base effects (stemming from very low inflation prints in 2Q18 and 4Q18, due to the fading of El Niño). Additionally, the gradual recovery of activity (and particularly of domestic demand) will probably provide more support to core prices.


Day Ahead: The central bank will release its monthly expectations survey throughout the day. In the latest publication, analysts increased their inflation forecasts for 2018 (to 20.3% from 19.9%) and for 2019 (to 14.3% from 14.0%).

Fuente: Itaú

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