Brazil Market Tests Beliefs Behind Recent Rally, XP Says
(Bloomberg) -- Two premises of last week’s rally of BRL and other Brazil assets are under scrutiny, Daniel Cunha, strategist at XP Securities says in a phone interview from New York.
- First, fresh reports in Brazil suggest a President Rousseff impeachment may be less likely than expected
- PMDB, main party among the president’s allies, remains split on whether or not to drop support for the govt
- PMDB meeting planned for March 29; should the party abandon Rousseff’s coalition at the crucial, “binary event,” bets on impeachment will rise
- Lula informally helping Rousseff on political talks negative for impeachment prospects as “the market respects Lula’s political skills, despite knowing his difficult situation”
- Secondly, impeachment may be not as good for economy as investors thought
- “The Odebrecht list shows that the scandal is not focused only on Rousseff and Lula,” but that it’s widespread
- Also negative for markets, FinMin Barbosa’s decision to ask Congress to lower the fiscal target, Cunha says, as “it shows that, while the political crisis develops, the economy keeps worsening”
- External scenario, with more hawkish Fed, also helped to weaken BRL this week, along with BCB decision to offer reverse FX swaps, instead of only regular swaps
- BCB reverse swaps opened room for speculation that BRL has a ceiling around 3.60/USD
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Daniel Cunha (XP Investimentos CCTVM SA)
Dilma Rousseff (Federative Republic of Brazil)
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