Itaú BBA - Fitch downgrades Brazil to non-investment grade

FX and Capital Markets

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Fitch downgrades Brazil to non-investment grade

December 21, 2015

Fitch downgraded Brazil’s sovereign rating to speculative grade and the exchange rate closed the week near 4.00 reais per U.S. dollar

(full report attached)

Exchange rate closed the week near 4.00 reais per U.S. dollar

Fitch downgraded Brazil’s sovereign rating to speculative grade (to BB+ from BBB-). The exchange rate closed the week at 3.98 reais per U.S. dollar, depreciating 2.77% and underperforming its peers (Charts 1, 2, 3 and 4).

Central bank continues to carry out line auctions 

The monetary authority maintained the rollover of contracts expiring in January at a pace of 11,260 contracts per day. If this pace is sustained, contracts will be fully rolled over for a fifth consecutive month. The central bank also carried out two line auctions of up to $500 million (Charts 5 and 6).

Currency flow is negative in December

The currency flow is negative by $1.4 billion in December, driven by $2.5 billion trade inflows and $3.9 billion financial outflows (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. Year-to-date, issuances add up to $8 billion (Chart 9 and table).

Foreign flows to the stock market are negative month-to-date

Foreign flows to the stock market are negative by $1 billion in December, due to $323 million outflows from the futures market and $751 million outflows from the spot market (Chart 10).

Investors increased their positions in dollar futures

Institutional and foreign investors increased their long positions in dollar futures by $2 billion and $1.6 billion, respectively. Other positions in FX derivatives were virtually unchanged. Non-residents, banks and institutional investors hold positions in FX derivatives of $29 billion, $48 billion and $28 billion, respectively (Charts 11, 12, 13 and 14).


 



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