Conclusion: While we do question the sustainability of peak sales growth, we’d be remiss not to call out Brazil’s ability to manufacture domestic demand in lieu of Chinese’s tightening. Moreover, domestic demand in Brazil will continue to influence the Bovespa apart from the Chinese demand story. This is in contrast to Europe, which is struggling with internal demand.
Brazilian retail sales grew at the fastest pace since 2001, as surging consumer demand augments an economic recovery that has largely been linked to China. We’ve been vocal in recent weeks saying that the outlook for the Brazilian economy is leveraged to Chinese demand and to the extent we see further tightening by their government. Although lagging, today’s Brazilian retail sales release moonshot sent the Bovespa up 1.2% in on the day and tells a tale of domestic strength - at least for now.
Brazilian retail sales sequentially accelerated to +15.7% y/y in March, up from a revised +12.2% y/y in February. The +15.7 % yearly increase is the most since at least 2001, according to the IBGE. Even more impressive, the jump was recorded in the same month real wages declined -3.01% y/y (March inflation more than doubled nominal wage growth at +5.16% y/y vs. +2.15% y/y), suggesting that March’s shopping spree was likely the result of a sequential improvement in the real wage growth rate. A pickup in consumer credit may have also occurred, as Cia Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s largest retailer, reported a 33 percent jump in quarterly profit citing a measured increase in consumer demand for electronics as the nation’s citizens prep for the World Cup.
While we do question the sustainability of peak sales growth, we’d be remiss not to call Brazil’s ability to manufacture domestic demand in lieu of Chinese’s tightening. Furthermore, with food inflation being the largest driver of price increases for the month of April, we may see consumer demand stay for a little while as this year’s forecasted record harvests will exert downward pressure on food prices.