Latam Talking Points In our view, the result benefitted from withdrawals from accounts held under PIS/PASEP programs


Core retail sales climbed 1.3% mom/sa in August, printing above the median of market expectations (+0.2%) and our estimate (stability), breaking a string of three consecutive monthly declines. Compared to August 2017, core sales climbed 4.1%. In our view, the result benefitted from withdrawals from accounts held under PIS/PASEP programs. Broad retail sales increased 4.2% mom/sa, beating the median of market expectations (+2.4%) and our call (+1.8%). Sales were 3.2% higher than before the truckers’ stoppages (February-April average). Compared to August 2017, broad retail sales grew 6.9%. Given the strong performance in August, the quarterly change rebounded to positive territory for broad retail sales (1.0%), but is still negative for core retail (-0.2%). Coincident indicators out so far (vehicle sales, surveys with consumers and retail entrepreneurs, Serasa retail index, inquiries to credit protection service SCPC) suggest that core retail sales fell 0.4% mom/sa in September, while broad retail sales dropped 1.2%.
** Full Story here.

Upcoming nationwide polls (as informed by the Superior Electoral Court): Ibope (October 15), Real Time Big Data (October 15), Datafolha (October 18) and Datapoder360 (October 18).


Industrial production weakened in August, dragged by mining and construction. Industrial production grew 0.2% year-over-year in August (from 1.3% in July), below our forecast and median market expectations of 0.9% (as per Bloomberg). Adjusted by calendar effects, industrial production grew 0.1% year-over-year in August (from 1.3% in July), with the three-month moving average (3mma) growth rate practically unchanged at 0.7% year-over-year in August. Looking at the breakdown, also using 3mma calendar-adjusted figures, mining kept contracting (-5.9% year-over-year in August, from -6.7% in July), dragged mainly by a decrease in oil & gas extraction. Likewise, construction decelerated to 1.2% in August (from 1.7% in July), associated to a contraction in construction works (related to the fading effect of reconstruction works) and a deceleration in engineering works (related to the public finances consolidation effect). In contrast, manufacturing (benefiting from US economic activity) remained somewhat resilient, growing 2.2% year-over-year in August (from 2.5% in July).

At the margin, industrial production also weakened. With seasonally adjusted figures, industrial production decreased 0.5% month-over-month in August (from 0.2% in July), taking the quarter-over-quarter annualized growth to 0.8% in August (from 0.1% in July). Although mining (-2.8% qoq/saar in August, from -4.2% in July) and construction (-2.3% qoq/saar in August, from -4.6% in July) indexes improved, both kept growing at negative rates. In turn, manufacturing sector decelerated somewhat to 2.9% qoq/saar in August (from 4.2% in July).

We expect economic activity to grow 2.0% in 2018, as manufacturing exports recover (benefited by growth in the U.S.) and the labor market (coupled with lower inflation) supports consumption growth. The renegotiation of NAFTA eliminates a major source of uncertainty over the economy and will likely boost investment growth. Weak oil production and remaining uncertainties over domestic policy direction are risks to economic activity.


Day Ahead: The statistics institute (INEI) will announce August’s GDP proxy. We estimate that the GDP proxy expanded 2.7% year-over-year. ** Read our full week ahead note below.

The Week Ahead in LatAm


On Wednesday, the INDEC (the official statistical agency) will publish the National CPI for September. Headline inflation rose by 3.9% month over month in August (3.4% for the core reading). According to private estimates (Elypsis consulting) headline inflation in September was 7.3% mom, while the core measure reached 9.3% mom, reflecting the sharp depreciation of the peso and increases in regulated prices.

On Friday, the treasury ministry will publish the budget balance for September. We estimate that the 12-month rolling primary deficit fell to 2.6% of GDP in August, from 2.7% in July. The treasury submitted to Congress a budget that seeks a zero primary deficit in 2019, down from an estimated 2.6% of GDP this year.


Up to now, there are four polls registered for this week: Ibope and Real Time Big Data, both to be released from Monday onwards, and Datafolha and Datapoder360, both to be released from Thursday onwards. The most recent Datafolha poll indicated Jair Bolsonaro (PSL) with 58% of valid votes and Fernando Haddad (PT) with 42%. In addition, Bandeirantes channel might host a presidential debate on Friday (19), depending on Bolsonaro’s availability.

On economic activity, the key release will be August’s Service Sector Survey (PMS) on Tuesday, for which we forecast a 0.2% increase on yoy terms. Also, September’s CAGED formal job creation may come through (release date not yet specified). We forecast a net creation of 77k jobs, which implies a 14k formal jobs creation on seasonally adjusted terms, taking the 3-month s.a. moving average up to 26k from 14k. Finally, the BCB will release its monthly activity index (IBC-Br) for August on Wednesday – our preliminary forecast (conditional to Service Sector Survey) points to a 0.1% mom s.a. increase.


On Thursday, the central bank will publish the decision of its two-day monetary policy meeting (October 17-18). In September, when the board unanimously opted to keep the policy rate at 2.5%, the internal debate centered on the appropriate timing for the first hike in the upcoming tightening cycle. The board seems convinced that improved macroeconomic conditions are sufficient to drive inflation to the 3% target, supporting the start of the normalization process. Furthermore, in its view, delaying the start of the tightening cycle for some time would likely require a more aggressive cycle once underway. While the board’s messaging has failed to have widespread buy-in, with 83% of economic analysts surveyed by the central bank expecting steady rates this month, assets have priced-in a hike. We believe that neither activity nor inflation data leading up to the meeting sufficiently surprised to alter the board’s outlook and therefore expect a rate hike of 25bp to 2.75% at this meeting.


On Tuesday, think-tank Fedesarrollo will release the September consumer confidence. Consumer confidence in August remained in optimistic territory far above levels recorded one year ago, but retreated from July. Consumer sentiment index came in at 4.7 points with the improvement from last year (-15.9) evenly explained by more favorable views on current conditions as well as on expectations. Stable inflation, the expansionary monetary policy, and elevated oil prices would likely support private confidence going forward.

On Wednesday, activity indicators for the month of August will be published. In July, the indicators continued to show promise. Although annual growth of retail sales surprised to the downside, there was improvement at the margin. Meanwhile, manufacturing growth remains encouraging and in line with expectations. For August, we expect we expect industrial production to increase 4.1% year over year (3.5% in July), boosted by a low base of comparison. Meanwhile, firm auto sales in the month point at retail sales growth of 6.0% in twelve months (3.2% in July), aided overall by low inflation, an expansionary monetary policy

On Thursday, the central bank will publish the trade balance for the month of August. In July, the narrowing of the trade deficit was interrupted with a deficit of USD 557 million (USD 482 million one year earlier). Robust intermediate goods imports, as the activity recovery consolidates, offset the still elevated oil exports. We expect a trade deficit of USD 765 million in August (marginally smaller than USD 810 million last year), driven by firm imports of consumer and industry related capital goods. Looking further ahead, higher terms of trade would likely contribute to the trade balance adjustment continuing.


On Thursday, Mexico’s Central Bank (Banxico) will publish the minutes of October’s monetary policy meeting (held two weeks ago), where most of Banxico Board members voted to leave its policy rate unchanged at 7.75%. We expect the minutes to further explain the reasons behind one board member’s vote for a 25-bp hike. Also, we expect to see more detail about Banxico’s concerns on the inflation outlook, as the board mentioned that the recent inflation upside surprises affected the deceleration path of core inflation (due to the effect of non-core items on production costs) and have delayed the convergence of headline inflation to Banxico’s target.


Starting the week, the statistics institute (INEI) will announce August’s GDP proxy. We estimate that the GDP proxy expanded 2.7% year-over-year, from 2.3% in July.  On the non-natural resources side, construction (boosted by public investment), non-primary manufacturing and services continued to support monthly GDP. In turn, we expect natural resources sector to decelerate, dragged mainly by the mining sector, while we expect fishing to recover.

Fuente: Itaú

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