BRL Driven by U.S., Reforms; Lula May Matter for 2018: Analysts
(Bloomberg) -- BRL volatility is driven by outlook for U.S. rates and President Temer’s reforms; allegations against former President Lula likely to have little immediate market impact, though could over the longer term, analysts say.
- BRL following broader FX market reaction to U.S. data, which sent mixed signals on economic growth, Luciano Rostagno, chief-strategist at Banco Mizuho, says
- Accusations against Lula also overshadowed by reports showing that Temer president’s fiscal effort suffering from pressures from indebted state governors asking for aid
- “The market attention in near term is much more focused on how Temer will address the reforms”
- Formal accusations against Lula reinforces a scenario of dimming prospects for PT, Brazil’s main left party, in the municipal elections next month and 2018 presidential run, Joao Castro Neves, political analyst at Eurasia Group, says
- “The market could think that the left is dying. However, this may be a delusion”
- If Lula is not sentenced, he may keep some competitiveness as 2018 is likely to be a “fragmented election,” with several candidates with chances but no one as a strong favorite
- Even if Lula is condemned and can’t run, there’s no guarantee that the strongest runner in 2018 will necessarily be pro-reforms, Neves says
- Eurasia sees a “reasonably positive” scenario for Brazil, with Temer likely approving reforms, despite suffering opposition and having to accept changes in the measures
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Luiz Inacio Da Silva (Federative Republic of Brazil)
Joao Castro Neves (Eurasia Group)
Joao De Castro Neves (Eurasia Group)
Luciano Rostagno (Banco Mizuho do Brasil SA)
Michel Temer (Federative Republic of Brazil)
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