Below-expected activity data and Copom minutes reinforce our expectation of a halt in interest rates in June – 05/16
The Copom minutes confirmed the message of the statement that the committee prefers to postpone interest rate cuts, rather than further hikes. The Central Bank indicated that restrictive interest rates have already impacted economic activity, and that upward surprises in the short term should not prevent the slowdown from continuing in the coming quarters. It also highlighted the lags inherent in monetary policy mechanisms, the effects of which should deepen throughout the year. As a result, we maintained our expectation of maintaining the Selic rate at the June meeting, at 14.75%.
In March, trade and services negatively surprised the consensus of market projections, but the economy is still buoyant. The restricted and expanded retail sales were below expectations, but in the quarter the data consolidates the growth in trade at the turn of the year, mainly due to the more favorable scenario of family income. Services volume also came in below market expectations and the February data was revised downwards. With all the hard data released, the message is that the signs of economic slowdown are still in their early stages, so the first quarter continues with growth in ex-agricultural components, although not at the same levels as 2024.
In the political arena, domestic news was a relevant vector for internal risk premiums. The news indicated that the federal government was supposedly evaluating a package of measures with social and fiscal appeal to try to boost its popularity – which were denied by Haddad. The Finance Minister stated that he would only present specific measures to ensure compliance with the primary target and denied moves to increase the Bolsa Família budget. In addition, the government has begun discussions on the reinclusion of court orders in the fiscal target starting in 2027, and the reform of the Income Tax is also a focus of attention in Congress.
In the US data, there are significant reflections of the new trade situation, which should keep the Fed cautious in its monetary policy decisions. The data released this week generally indicated movements contrary to March, when trade tariffs were brought forward. Both the CPI and PPI were below expectations, influenced by sectors that stockpiled products in previous months. Retail, in turn, came in line with expectations, reinforcing this narrative. Finally, the preliminary result of Michigan’s consumer confidence was surprisingly low, both due to the current situation and expectations.
For more details, please check our Weekly Report 113.
