Cart (0)
business newsBrazil Outlook: It's Belt Tightening Time
Brazil's first female president is expected to exercise fiscal restraint.
PRINT
 |
|
But the biggest question now is how will markets react to her election and the second round of quantitative easing (QE 2) announced by the US Federal Reserve?
A holiday on Tuesday has kept trading light but so far yields on interest rate futures contract have come down. The equity markets have rallied for four straight days but most of the strength has been following the Chinese and US markets this week. For the most part, Brazilian markets have traded as if Rouseff was already priced in.
Moving to currency markets, the real basically shrugged off the initial election exposure but it has now rallied since the US Federal Reserve announced QE 2 on Wednesday. As of this morning, the real was up 0.5% to 1.6823 per dollar. QE 2 is also having an effect on commodity prices; raw sugar jumped over 4% and Brazil is the largest exporter of the sweetener. Analysts now expect Brazil to raise the tax on foreign fixed income purchases - the third time the government has done so since the beginning of October.
Another way Brazil could curb foreign inflows would be by buying back some of its international real-denominated bonds and selling new securities with longer maturities. A Bloomberg article states that the country is considering selling 10 and 30 year real-linked bonds abroad. The hope is that this will discourage foreign investors from buying government debt in their domestic market and help to keep the real in check.
One big effect of Rouseff’s election may be on Brazil’s credit rating. Dilma Rouseff is expected to exercise fiscal restraint when she takes office on January 1st. In a statement, Fitch said that Rouseff should slow spending growth and reduce debt. The firm expected changes to tax and labor laws that will increase investment to keep pace with economic growth. In June, Fitch raised its outlook on Brazil’s BBB rating to positive.
Further Reading:
Petrobras (PBR) Bonds have outperformed Hess (HESS) and Exxon Mobil (XOM) after Brazil made the biggest crude discovery in 34 years.
Brazilian Hedge Funds begin selling retail stocks after valuation surges.
Rouseff speaks on the currency war.
Chart of the week: Brazilian Exports
Surprisingly Brazil industrial output shrank.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
