Brazilian assets: highly driven by global developments - Rabobank

Analysts from Rabobank explained that on the economic front, Brazilian data showed that the economy and job market continue to improve gradually while on the fiscal performance, they see the outlook clouded by “the straightjacket of mandatory expenses and fast-rising debt”. 

Key Quotes: 

“Specific Brazilian asset classes suffered effects from last week’s pickup of USD and U.S. Treasury yields, following market expectations of a Fed tightening this year and possible advances in U.S. tax reform. The BRL weakened slightly (-1.2%) and the yield curve saw a mild bear-steepening (less than +10bps in belly, back-end).”

“Despite persistent risks on the political front, as Congress processes the charge against president Temer – causing relevant delays in the talks about constitutional changes in the pension system – the movements in Brazilian assets remain in line with peers, highly driven by global developments.”

“On the economic front, last week’s events showed a bit more of the same: the economy and job market continue to improve gradually, the external accounts remain in (cyclically) comfortable situation and the fiscal performance, outlook remain clouded by the straightjacket of mandatory expenses and fast-rising debt (see details in the report).”

“This week’s macro calendar features the release of August industrial production (Tue) and September IPCA inflation (Fri). As per the latter, our forecasts stands at 0.10% m-o-m, still with a strong downward contribution from food costs, whose deflation seems to be easing in recent days. Our estimate for September is consistent with stability of the annual reading at 2.5% y-o-y (down from 2.68% in August). September trade balance (Mon) is also on the agenda. We look for a surplus around 4.6 billion, with exports and imports expected to rise about 1% y-o-y to USD 18.0 billion and USD 13.4 billion, respectively. With our number, the twelve-month rolling balance will rise to US$ 64.2 billion from US$ 63.4 billion, another record since the 1960s in our U.S. CPI-adjusted series. “

“Brazilian market players will pay close attention to Friday’s September employment figures out of the U.S., with the most widely watched nonfarm payroll poised to show dampening effects from a recent slate of hurricanes. In the European Zone, the release of ECB’s monetary policy meeting accounts may also shake markets (with potential effects on Brazilian assets) on Thursday.”