Itaú BBA - Weekly Fixed Income LatAm Strategy: All eyes on election polls in Brazil

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Weekly Fixed Income LatAm Strategy: All eyes on election polls in Brazil

September 10, 2018

We have no position in Brazilian local rates today, due to domestic uncertainties

BRAZIL: Election polls to come out this week are expected to reveal the initial impacts from the stabbing incident involving candidate Jair Bolsonaro (PSL), as well as the first 10 days of TV campaigning. There will be a DataFolha poll from Monday onwards and an Ibope poll from Tuesday onwards. The latest Ibope poll (sample Sept. 1-3) indicated Bolsonaro with 22%, Marina Silva (REDE) and Ciro Gomes (PDT) both with 12%, Geraldo Alckmin (PSDB) 9% and Fernando Haddad with 6%. Polls also indicate that Haddad is not yet recognized as the candidate supported by Lula (PT) within the majority of the population.

We have no position in Brazilian local rates today, due to domestic uncertainties. However, we acknowledge that the continuity of the reform agenda would cause rates along the curve to shift downwards relative to current levels.

The downside surprise on the August IPCA last week confirmed that the impact from the truckers’ stoppage was indeed temporary. We see pressure in tradable items (foods and industrials) because of BRL depreciation, but services inflation remains comfortably low because of the wide output gap.

MEXICO: Local rates kept on widening last week, on the deteriorating risk sentiment towards EMs in general and uncertainties about local macro policy. Our 5Y TIIE receiver (FX hedged) currently bears a 35bps loss. We continue to believe the market is yet to price in some normalization in Mexican rates going forward, with inflation under control and economic activity decelerating.

COLOMBIA: Another benign CPI print last week will continue giving comfort to Banrep’s strategy of keeping rates on hold for the time being. Twelve-month headline inflation is close to the 3% target and, more importantly, non-tradable inflation continues to drop.

We keep our outright receiver on the 1-year IBR rate, with a current gain of 10bps.

 



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