HALISTER1: Brazil Binary View on Impeachment Fuels Volatility: Templeton

Brazil Binary View on Impeachment Fuels Volatility: Templeton

(Bloomberg) -- Investors have shown a view on prospects of impeachment similar to those observed before the 2014 elections when BRL would drop as polls favored Rousseff and rise when the opposition gained, Rodrigo Borges, head of fixed income at Franklin Templeton Invest Brasil says in a phone interview.
  • NOTE: BRL dropped more than 4% over the past two days on concerns Rousseff govt may survive impeachment if former pres. Lula assumes a cabinet post; until last Friday, BRL posted biggest gains among EMFX on rising prospects Rousseff could be replaced by a more pro-reforms government
    • BRL 1-month volatility is nearing highest in 3 months
    • “It is difficult for the market to analyze politics,” even more so in the current scenario, Borges says
    • Mkt was influenced by prospect of a more market-friendly govt emerging in case Rousseff exits; now, should Lula join Rousseff, there might be policy changes
  • While in short-term the uncertainties are high, Brazil may offer long-term opportunities given relatively low asset prices, Borges says
  • There’s a view that, given allegations weighing on Lula and the poor economy, the ruling party PT has little hope to keep power in 2018 elections, opening room for a more pro- mkt govt
  • NOTE: BRL volatile on Veja report on Senator Amaral’s plea bargain and a Globo report saying Lula is said planning to accept post as minister
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
BEN US (Franklin Resources Inc)

People
Rodrigo Borges (Franklin Resources Inc)
Dilma Rousseff (Federative Republic of Brazil)
Luiz Da Silva (Federative Republic of Brazil)

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UUID: 7947283

HALISTER1: RATES: 10Y Yield Has Scope to 1.82%, 1.97% on FOMC, TD Says

RATES: 10Y Yield Has Scope to 1.82%, 1.97% on FOMC, TD Says

(Bloomberg) -- Base case for tomorrow’s FOMC statement is for median 2016 dot to shift lower to 3 hikes from 4 while risk assessment should signal a “slightly dovish leaning,” and keep a June hike alive, TD strategists say in note.
  • Under that scenario, to which they assign 55% probability, 10Y yield should fall by -2bp by end of day
  • Hawkish bias (20% probability) would “set the stage for an April hike” via statement containing “balanced” or “nearly balanced” and SEP with upgraded inflation projections, lower unemployment rate and 2016 hike pace reduced to 75bp; 10Y yield should rise 5bp
  • Dovish bias (25% probability) would include statement citing “downside risks,” median 2016 dot lowered to 3 hikes, core Fed members’ dots reduced to 2 hikes, and lower long-run fed funds rate projection; 10Y yield should drop 10bp
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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UUID: 7947283

HALISTER1: Lula’s Possible Return to Brazil Govt Pressures BRL, Swaps: CM

Lula’s Possible Return to Brazil Govt Pressures BRL, Swaps: CM

(Bloomberg) -- BRL drops, DI swap rates soar on concerns over possible return of former President Lula to government as member of President Rousseff’s cabinet, Camila Abdelmalack, chief-economist at CM Capital, says in a phone interview.
  • “Lula in a ministry could give Rousseff short-term survival,” Abdelmalack said; “the market knows that Lula advocates for stimulus measures and his Workers Party defends the usage of international reserves”
  • Expanding credit would be incompatible with BCB priority for fighting inflation and Finance Minister’s duty to fix the budget
  • If a large amount of reserves are used, it could harm country’s cushion
  • Brazil needs a whole political shift, with brand new leadership, to embrace major reforms; only after that, govt would be able to expand credit to boost growth, Abdelmalack says
  • While rising uncertainties weaken the currency, it may be turned into a buying opportunity if the prospects of impeachment continue to rise even if Lula moves into the cabinet
  • Opposition may reinforce attacks on government, taking some advantage of Lula being together with Rousseff in Brasilia, opposition may ’’aim at one to catch two’’
  • NOTE: Lula said to decide soon on joining Rousseff cabinet; decision is said to become more urgent after Sao Paulo judge, who was going to rule on request for Lula arrest warrant, said decision should fall to Federal judge Sergio Moro
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Camila Abdelmalack (Cm Capital Markets Corretora De Cambio Titulo E Valores Mobiliarios Ltda)
Dilma Rousseff (Federative Republic of Brazil)
Luiz Da Silva (Federative Republic of Brazil)
Sergio Moro (Federative Republic of Brazil)

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UUID: 7947283