Brazil’s retail sales rose by 0.4% month on month in January. This was above the forecast of -0.1%.
The result indicates retail activity increased compared with the prior month. The outcome exceeded expectations by 0.5 percentage points.
The surprisingly strong 0.4% retail sales number for January was the first signal that consumer resilience was being underestimated. This data point, beating expectations of a slight contraction, suggests underlying strength in the domestic economy. We now have to question if the market has been too pessimistic on Brazil’s growth prospects for this year.
This momentum appears to have continued, as February’s inflation data released last week showed a notable uptick in the services component, climbing to 5.1% year-over-year. This has led us to believe the central bank will be far more cautious, a sentiment reflected in the DI futures curve, which has flattened considerably since late February. The market is now pricing in only 50 basis points of cuts for the rest of 2026, down from 125 at the start of the year.
This is a stark contrast to the economic picture we saw in the third quarter of 2025, when a series of weak data prints caused a significant sell-off in Brazilian assets. At that time, unemployment had ticked up to 8.2% and consumer confidence was falling. The current turnaround suggests that the earlier phase of monetary easing is finally filtering through to the real economy.
For traders, this signals a need to reconsider bearish positions on the Ibovespa. We believe buying call options on consumer-focused stocks, particularly in the retail and financial sectors, offers a direct way to gain exposure to this domestic strength. The implied volatility has increased, so using call spreads could be a cost-effective way to structure this view.
This revised outlook also has implications for the Brazilian Real. A more hawkish central bank and a robust domestic economy make the currency more attractive from a carry trade perspective. We should therefore consider selling out-of-the-money puts on the BRL against the dollar to collect premium, positioning for a period of stability or gradual appreciation.
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