Trial of former Brazilian president Lula’s appeal is on the market’s radar


Argentina’s central bank cut its benchmark interest rate (7-day repo rate) by 75bps, to 27.25%, at its second monetary policy meeting in January. The decision was in line with our expectation and below that of the market (unchanged at 28%, according to Bloomberg). According to the press release accompanying the monetary decision, core inflation resumed a disinflation trend and broke the persistence level of 1H17.

The central bank reiterated that it will be cautious in the accommodation of monetary policy to the new disinflation path. The monetary authority revealed that, according to high-frequency indicators tracked by the central bank, the behavior of prices show mixed signals (instead of a favorable dynamic, as mentioned in the previous statement). Additionally, the next expectation survey will likely show higher inflation expectations, given that the latest poll was carried out before the government changed the inflation targets for 2018 and 2019. We believe it is likely that the central bank will opt to stay put in the next monetary policy decision.
** Full Story here.

Talk of the Day


Today, the market will focus on the trial of former-president Lula’s appeal at the Fourth Regional Federal Court (TRF-4). In July 2017, Lula was convicted on charges of money laundering and passive corruption. As a potential candidate for the presidential elections, the outcome of the trial can be key for the next steps of his candidacy. According to Broadcast, the trial is scheduled for 8:30 AM (SP Time).

The mid-month consumer price index IPCA-15 climbed 0.39% in January, slightly below our estimate and the median of market expectations. Year-over-year inflation accelerated to 3.02% from 2.94% in December. Market-set prices advanced 0.43% in January and the year-over-year change accelerated to 1.5% from 1.3% in December. Regulated prices climbed 0.29% during the month and the year-over-year change slid to 7.8% from 8.0%. Based on the IPCA-15 report and other current information, our preliminary forecast for the headline IPCA in January points to a 0.37% increase. As in the IPCA-15, the biggest upward contributions will come from food and transportation. In contrast, the housing group will provide a negative contribution due to the decline in electricity bills after the green mode was activated early in the month. Hence, the year-over-year change in headline inflation will remain virtually stable at 2.94% (2.95% in December). For the full year, our estimate for the IPCA remains at 3.8%. ** Full Story here.

According to data anticipated by local newspapers, CAGED formal job creation came in at -328k in December, above our estimate (-351k) and market expectations (-416k). Our preliminary seasonal adjustment points to creation of 52.4k jobs, taking the 3-month moving average to +44k from +22k, the strongest 3-month result since 1Q14. It’s worth noticing that December has a high seasonality, and always posts a negative result. We expect the economic recovery to further impact the formal labor market positively in coming months.


After being battered by natural hazards (earthquakes and hurricanes) in 3Q17, the GDP proxy recovered somewhat in October and November; although different growth measures indicate that the expansion pace of the economy remains weak. The GDP proxy (IGAE) expanded 1.5% year-over-year in November, above our forecast (0.7%) and median market expectations (1.2%, as per Bloomberg). According to calendar-adjusted data reported by the statistics institute (INEGI), growth was a bit higher (1.7% year-over-year). The seasonally-adjusted IGAE gained 0.7% from October. Even so, the quarter-over-over annualized growth rate posted 0.6% in November (from 1% qoq/saar).

We expect GDP growth of 2.1% for both 2017 and 2018, down from 2.9% in 2016. Factors playing against economic growth in the short-term are tight macro policies (fiscal and monetary) and the uncertainties associated to NAFTA renegotiation and the presidential elections (which put investment decisions on hold). On the positive side, we note the fiscal drag will be smaller in 2018 relative to 2017. Moreover, a dynamic U.S. industry, coupled with a competitive real exchange rate, will likely sustain Mexico’s manufacturing exports. Finally, lower inflation and a robust labor market, in our view, will support consumption in 2018. ** Full Story here.

Mexico’s supermarket & department store (ANTAD) same-store-sales slowed down slightly in 4Q17, amid falling real wages, tighter credit conditions, and softer growth of remittances converted into pesos.ANTAD sales expanded 4.7% year-over-year in December, slightly above our forecast (4.5%). Given December’s result, ANTAD sales expanded at an average pace of 4.1% year-over-year in 4Q17 (from 4.5% in 3Q17). Real wages remained as the main drag on consumption.

Today, CPI inflation for the first half of January will be announced at 12:00 PM (SP Time). We expect the bi-weekly index to post 0.45% (Bloomberg consensus: 0.38%).

Fuente: ITAU

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