Halister News

(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