International Macroeconomic Perspectives

US: With over a month to go before the next monetary policy meeting, the Fed has the challenge to anticipate how the economy will perform as the trade war extends and global demand weakens.

• July´s FOMC Minutes will shed some light on reasons backing the latest rate cut, as markets seek signals from the Fed as to how it will proceed in its next meeting. While economic figures still signal activity deceleration but solid job market and personal spending, Committee members are divided as to whether another rate cut is necessary this year. So far, the Fed´s arguments in favor of easing monetary policy point to recession risks due to high uncertainty from trade tensions with China, and slowing global demand

• Uncertainty has negatively affected investment since 1Q, and in particular the manufacturing sector, hence, Industrial Production has slowed along the year. Output fell 0.2% mom seasonally adjusted in July, rising 0.48% yoy, the slowest pace in over two years.

• In contrast, strong retail sales figures point to solid consumption figures at the start of the third quarter. The broad retail sales index rose 0.7% mom seasonally adjusted, with 10 out of 13 main sectors achieving positive growth. Moreover, the control group sales, proxy for consumer spending, rose 1% mom, extending the rally to five months

BRAZIL: Advances in the government´s reform agenda boosted business confidence

• As the Pension Reform bill is ready to be evaluated by the Senate in the coming weeks, the government proceeds with the Tax Reform. This has restored local confidence despite weak economic figures throughout the year. The CNI confidence index rose to 59.4 in August, its fourth straight monthly improvement. Confidence strengthened in Mining and Construction, but the main driver was higher expectations the economy will rebound within the next six months

• Rising confidence is in line with recent activity data releases. The economic activity index rose 0.3% mom seasonally adjusted, following a revised 1.1% increase in May. However, figures recall a 1.8% drop when compared to last year. Despite negative growth in the first quarter, activity is slowly improving, and GDP is expected to grow 0.2% qoq s.a. in 2Q.