Itaú BBA - Bolsonaro’s speech in Davos at the spotlight

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Bolsonaro’s speech in Davos at the spotlight

January 22, 2019

President Bolsonaro will make his speech at the World Economic Forum annual meeting

Talk of the day


According to the Central Bank Focus survey, the median GDP growth expectations for 2019 declined to 2.53% (from 2.57%), increased to 2.60% for 2020 (from 2.50%) and remained stable at 2.50% for 2021. Median forecasts for the exchange rate appreciated to BRL 3.75/USD for 2019 (from 3.80), to BRL 3.78/USD for 2020 (from 3.80), and to BRL 3.80/USD for 2021 (from 3.85). The IPCA inflation expectations remained virtually stable for 2019 (to 4.01%, from 4.02%), and did not change for 2020 and 2021 (at 4.0% and 3.75%, respectively). The year-end Selic rate expectations also remained stable in 2019 (at 7.0%), 2020 (8.0%) and 2021 (8.0%).

Day ahead: President Bolsonaro will make his speech at the World Economic Forum annual meeting, in Davos, at 12:30 PM (SP Time), which, according to local news, may focus on reinforcing the new government’s commitment to the reform agenda, especially the pension reform.


Day ahead: The central bank will publish the trade balance for the month of November at 1:00 PM (SP Time). We expect a trade deficit of USD 1.0 billion in November (USD -700 million last year), as export growth remains contained. At 5:00 PM (SP Time), the coincident activity indicator (ISE) for the month of November will be released. We expect the original series to pick up to 3.6% yoy, consistent with the better activity indicators for the month.


Day ahead: INEGI will announce December’s unemployment rate at 12:00 PM (SP Time). We expect the unemployment rate at 3.2%. According to data reported by the Mexican Institute of Social Security (IMSS), formal employment increased 3.4% yoy in December.


Day ahead: The trade balance for December will come out at 5:00 PM (SP Time). A weak currency and contraction of internal demand have led to trade surpluses in recent months. We forecast a surplus of USD 200 million in December (up from a deficit of USD 800 million registered in the same month of 2017).

Fixed Income Strategy

We believe the real rate of Brazil’s long-term bonds (NTN-Bs 2045/2050) can decline to 4.0% (or below) if the pension reform is approved. The rate is now at around 4.6%, down from 6.0% in mid-2018. The target at 4.0% is based on our view that Brazil’s neutral interest rate now stands in between 2.5% and 3.0% and that the premium from the neutral to the long-end rate will likely remain below 1.0%. The first chart below compares the rate of the NTN-B 2045 to a proxy of the market’s view of Brazil’s neutral interest rate, extracted from the BCB weekly Focus survey. We built this series using the median SELIC rate expectation 5 years ahead and the median inflation expectation 5 years ahead in every point of time in the Focus survey.
**Full story here.

Most Latam rates increased last week, in tandem with U.S rates, which widened slightly. Nominal rates widened in Chile and Colombia, and remained virtually stable in Mexico (see charts). Brazil outperformed with some tightening especially at the belly of the curve. The market will continue looking for news regarding the U.S. and China trade deal this week, as reportedly both countries seem to be making progress on negotiations.

We continue to receive the NTN-B 2050 real rate (now at 4.59%) with a 21bps gain so far. Nominal rates tightened 10bps at the belly of the curve last week and just about 4bps at the long end, while long-term real rates continued to decline.
**Full story here.

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