Itaú BBA - Brazilian markets improve by the end of the session

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Brazilian markets improve by the end of the session

November 13, 2017

The BRL reversed intraday losses and closed at 3.2779/USD (+0.18%) after the resignation of the Brazilian Cities Minister.

With information available until 6:30pm Brasilia time

Highlights

  • The BRL reversed intraday losses and closed at 3.2779/USD (+0.18%) after the resignation of the Brazilian Cities Minister, as reported by Broadcast. Markets are watching for signs of an eventual cabinet reshuffle and accompanying negotiations over the pension reform. In Brazilian rates, the curve steepened during the session, as the Jan-25 closed 8bps wider to 10.60%. However, rates improved in the after-market, consistent with the BRL retracement.  
  • Elsewhere in FX, the CLP strengthened 0.10% to 630.28/USD as copper prices increased. The MXN is trading at 19.1190/USD (-0.09%). In Colombia, markets were closed due to a holiday. 

Macro Backdrop

BRAZIL
  • Inflation expectations for 2018 slightly increased to 4.04%. According to Focus survey, IPCA inflation expectations slightly increased for 2017 to 3.09% (+1bp) and for 2018 to 4.04% (+2bps), while it has remained flat at 4.25% for 2019. Year-end Selic expectations also remained flat for the three years horizon, at 7.00% for 2017 and 2018, and 8.00% for 2019. GDP growth expectations did not change for 2017 (at 0.73%), and also remained flat for 2018 (at 2.50%), while it has increased 5bps for 2019 (to 2.55%). Finally, the BRL remained flat for the three years horizon: at 3.20/USD for 2017; at 3.30/USD for 2017; and at 3.33/USD for 2019. See BCB Report
Market Developments
  • GLOBAL MARKETS: The US Treasury curve flattened and US corporate credit spreads widened as equity markets were on the red. Global Markets Tracker
  • CURRENCIES & COMMODITIES: In commodities space, energy and most agriculture posted losses while metals outperformed. Oil benchmarks weakened (WTI: -0.07% to USD 56.94/bbl). Also on the red: wheat (-1.85%), corn (-0.58%) and soybean (-1.22%). Finally, iron ore strengthened 0.55% and copper surged 1.45%. In FX, the BRL reversed daily losses and closed at 3.2779/USD (+0.18%) after the resignation of the Brazilian Cities Minister. Markets are watching for signs of an eventual cabinet reshuffle and accompanying negotiations over the pension reform. Likewise, the CLP strengthened 0.10% to 630.28/USD as copper prices increased. The MXN is trading at 19.1190/USD (-0.09%). FX & Commodities Tracker
  • CDS SPREADS & EXTERNAL BONDS: Credit spreads (5-year) were broadly stable in the region. In Chile and Mexico, CDS was stable at 54bps and 111bps, respectively. Meanwhile, Brazilian spreads inched up 1bp to 181bps. External Bonds and CDS Tracker
  • LOCAL RATES – Brazil: The Brazilian curve steepened in the session. In DI futures, while front end yields fell 2bps, longer rates widened (Jan-25: +8bps). Real rates increased roughly 3-4bps. Brazil Rates Tracker
  • LOCAL RATES – Mexico: Mexican yields widened, pressured by a weaker MXN. In TIIE swaps, the 1-year increased 1bp to 7.55% and the 5-year went up 3bps to 7.33%. Mexico Rates Tracker
  • LOCAL RATES – Chile and Colombia: Chilean rates narrowed pressured by falling core yields and a stronger CLP. In Camara swaps, the 5-year went down 2bps to 3.50%. Chile Rates Tracker In Colombia, markets were closed due to a holiday. 

Upcoming Events

  • In Brazil, October’s CAGED formal job creation may come through. We forecast a net creation of 17k jobs (+11k jobs in seasonally adjusted terms). On economic activity, the key releases will be September’s retail sales (Tue.) and the Service Sector Survey, PMS (Fri.). We expect a 0.7% mom/sa increase in both core and broad retail sales. For September’s PMS, we expect the headline to fall 2.4% yoy. Markets will also focus on the discussions involving the social security reform, as the government has been negotiating with lawmakers an alternative version to the rapporteur’s (Arthur Maia) proposal.
  • In Chile, the BCCh will hold its monthly monetary policy meeting (Tue.). We expect the central bank to hold the policy rate at 2.5%, while retaining an easing bias.
  • In Colombia, the trade balance for the September will be published (Tue.). We expect a trade deficit of USD 280 million. Then, the national statistics authority will publish the supply-side breakdown of GDP growth for 3Q17 (Wed.). We estimate activity increased 1.0% from the previous quarter. Furthermore, think-tank Fedesarrollo will release the October consumer confidence (Fri).
  • In Argentina, the INDEC (the official statistical agency) will publish the National CPI for October (Tue.). We adjusted recently our 2017 inflation forecast to 23% from 22% previously, above the target range set by the central bank for this year (12-17%).

For details, refer to our Monthly Strategy Report.

For details on Brazilian markets, refer to our Handbook - First edition.

Today's editors: Eduardo Marza, Pedro Correa



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