Itaú BBA - BRL underperforms its peers following S&P’s downgrade

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BRL underperforms its peers following S&P’s downgrade

February 22, 2016

S&P downgraded Brazil’s sovereign rating to BB from BB+, and maintained a negative outlook.

(full report attached)

Real closed the week at 4.02 after S&P downgrade 

Standard & Poor’s downgraded Brazil’s sovereign rating to BB (two notches below investment grade) from BB+, and maintained a negative outlook. According to the agency, the country faces significant political and economic challenges. During the week, the Brazilian currency weakened 0.47% and underperformed its peers (Charts 1, 2, 3 and 4).

Central bank maintained the rollover of FX swap contracts expiring in March

As previously announced, the monetary authority continued to roll over contracts due in March last week. If the pace of 11,900 contracts per day is sustained, contracts will be fully rolled over for a seventh consecutive month (Charts 5 and 6).

Negative currency flow last week

The currency flow was negative by $423 million during the second week of February, as $498 million financial outflows outsized $75 million trade inflows. Month-to-date, the flow is negative by $1.4 billion (Charts 7 and 8).

No external bond issuance by Brazilian companies last week

There were no issuances this year. Issuances added up to $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are positive

Foreign flows to the stock market are positive in February, driven by $124 million inflows to the futures market and $358 million inflows to the spot market (Chart 10).

FX derivatives positions were unchanged last week

Investor positions in FX derivatives were virtually unchanged.  Non-residents, banks and institutional investors hold positions of $29 billion, $42 billion and $30 billion, respectively (Charts 11, 12, 13 and 14).


 



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