The nation-wide unemployment rate fell to 11.7% in October, printing in line with the median of market estimates and slightly above our call (11.6%). Compared to one year earlier, it slid 0.5 p.p. Using our seasonal adjustment, unemployment remained virtually stable at 12.1%. Informal jobs were once again behind employment gains. According to our estimate, formal jobs in the private sector dropped 0.3% qoq in the quarter ended in October, while all other jobs climbed 0.9%. Importantly, the performance of formal jobs surveyed by PNAD has not yet shown the improvement captured by the Ministry of Labor’s CAGED registry in recent months.
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The central government posted a BRL 9.5 billion primary surplus in October, better than our call and market consensus (at BRL 6.3 and 5.8 billion, respectively). Compared to our forecasts, the main surprise came from lower subsidies for diesel prices and other mandatory expenditures that are typically more difficult to forecast.
Central government result will likely be around BRL 30 billion (0.5% of GDP) better than the target for the year (BRL -159 billion or -2.2% of GDP). Even with a more moderate economic growth and the adoption of subsidies for diesel prices, lower than currently estimated expenditures and some resilience in recurring revenues eased any pressure to comply with the target.
Day Ahead: 3Q18’s GDP will be released at 9:00 AM (SP Time). Our forecast is 0.7% qoq/sa growth. The 3Q release is more uncertain than usual, given that the quarterly series since 1Q16 will also be revised. These adjustments tend to revise upwards real growth, therefore imposing an upward bias to our forecast. At 10:30 AM (SP Time), October’s consolidated public sector will come through. We expect a BRL 8.5 billion primary surplus (consensus: 4.5 billion).
The central bank of Mexico (Banxico) published the minutes of November’s meeting, held two weeks ago, when the majority of board members decided to increase the reference rate by 25-bps to 8%. Surprisingly, Irene Espinosa, who is not seen as part of the more hawkish camp of the board, was the member that voted for a 50-bp hike. In her view the incoming administration announcements of public policies and some legislative initiatives have generated an environment of uncertainty for the economy, public finance sustainability and private investment conditions, justifying a 50-bp rate increase. Like in the statement announcing the policy rate decision and in the most recent inflation report, the central bank indicates that monetary policy could be tightened further. Two board members seem to have their mind set for a December hike, while a third member is waiting for further news of the incoming administration policies.
We now expect Banxico to hike rates by 25-bps in the next monetary policy decision (December 20). The minutes suggest the board will monitor closely the 2019 Budget (will be sent to Congress on December 15th at the latest), which we do not think will bring much relief considering the recent news flow (the budget will likely incorporate extra expenditures that will make complying with the fiscal deficit target difficult), an environment of still-high inflation, monetary policy tightening in the U.S. (although the risks of more rate hikes by the Fed than expected seem to have diminished more recently) and uncertainties over the approval in the U.S. congress of the renegotiated NAFTA.
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G20 summit takes place in Argentina. Presidents Macri will meet U.S. President Trump on today’s morning, while all the eyes will be on the expected meeting of Trump and Xi Jinping from China, likely to be held on Saturday. Heightened security measures were taken while anti-globalization protests are expected.
Day Ahead: The national institute of statistics (INE) releases several activity indicators for October at 10:00 AM (SP Time). We expect manufacturing production to post a growth rate of 5.0% year over year (consensus: 5.0%). Additionally, we expect the unemployment rate for the quarter ended in October to come in at 7.1% (consensus: 7.2%). Finally, today is also the deadline for the Congress to approve the 2019 fiscal budget. An intense discussion with the opposition regarding distribution of the resources is advancing, with total public expenditure aimed at reaching CLP 47.4 trillion (22,9% of GDP), consistent with a 1.7% of GDP nominal deficit, lower than the estimated 1.9% of GDP deficit for 2018.