Buysidebrazil

🔆 BUYSIDEBRAZIL | Weekly Report | We expect the Central Bank to raise the interest rate to 11.25% at the next COPOM meeting, accelerating the hike pace to 50bps - 11/01 ✅ Over the past 45 days, the economic data evolution has kept a challenging external scenario. In its September communication, the #COPOM committee highlighted the uncertainties surrounding the U.S. economy, which raised doubts about the Federal Reserve's stance on monetary easing. Thus, the cautious environment persisted, with economic data evolution favoring a reduction in the pace of Fed Funds rate cuts to 25bps at the next #FOMC meeting. ✅ Domestically, the worsening of current #inflation and uncertainties about meeting the fiscal target have been the main highlights since the September COPOM. The #IPCA-15 for October recorded a 0.54% MoM increase with concentrated pressure in core services, a key metric monitored by the Central Bank. On the fiscal front, the environment over the past 45 days has been noisier, with persistent uncertainties regarding the scale of structural spending revisions needed to meet the primary target. ✅ In terms of modeling, the upward interest rate curve from the Focus survey is the only downward pressure vectors in the Central Bank’s inflation model. However, the deterioration of other variables such as exchange rates, inflation expectations, oil and commodity prices more than offset this downward effect. Thus, along with developments in the domestic and international environment, we believe the #CentralBank will accelerate the pace of interest rate hikes to 50bps at the next meeting, reinforcing the committee's commitment to bringing inflation back to target. ✅ The communication is expected to remain tough, with the risk balance still skewed to the upside, emphasizing the importance of credible fiscal policy for anchoring inflation expectations given the recent noise. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | With qualitative deterioration, current inflation reinforces caution in monetary policy - 10/25 ✅ Although the rise at the margin reflects the effects of the change in electricity tariff flags in October, the increase in underlying metrics was the highlight of the release. ✅ The #IPCA recorded a 4.47% increase over the past twelve months, a number very close to the tolerance range of the inflation target of 3%. As a result, views that the #CentralBank should remain cautious in conducting monetary policy have strengthened, consolidating expectations of an acceleration in the pace of #interestrate hikes at the next #COPOM meeting in November. ✅ At the IMF, statements from Central Bank leaders highlighted the dynamism of economic activity in Brazil and concerns about fiscal risks. Along the same lines, Finance Minister Fernando Haddad reiterated the commitment to the fiscal target by stating that the framework does not need to be reformulated, but reinforced, which was well-received by market agents. ✅ A week before the US elections, Trump is advancing in the polls and moving global assets. Thus, amid Trump's noisy rhetoric, particularly on import tariffs, the question arises about the possibility of a Republican victory with a majority in both houses, which would favor the implementation of the measures advocated by the candidate and, consequently, generate impacts on the global #economy. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | Current #inflation rises with regulated prices, although underlying services ease at the margin - 10/11 ✅ With the change in the electricity tariff flag to red level 1, electricity was the main driver of the 0.44% increase in the #IPCA in September. The result was above our expectations (0.39%) but below market projections (0.46%), which experienced downward surprises concentrated mainly in underlying services. I ✅ In economic activity, monthly surveys confirm the narrative of gradual deceleration in the third quarter of the year. Retail sales in August showed declines in both readings, with widespread contraction across sectors. The movement was driven by credit-related metrics, with notable drops in vehicles, furniture, and office supplies, while personal use items stood out in the decline of income-related products. ✅ In the political sphere, the week was marked by the repercussions of the results of the first round of municipal elections. On the fiscal front, President Lula's statements about income tax exemption for those earning up to R$ 5,000, along with the confirmation of the purchase of new aircraft for the Presidency, were poorly received by the market. ✅ In the United States, September's #CPI surprised to the upside, with an increase in goods and services. The overall index rose by 0.2%, while the core advanced to 0.3%, both above market expectations. The data composition was more negative, with widespread pressure coming from goods excluding food and energy, alongside the acceleration of the underlying services, driven by airfare and medical services. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | Moody’s upgrades Brazil’s rating amid market uncertainties over public finances - 10/04 ✅ After improving Brazil's rating outlook in May, the credit rating agency Moody's Corporation upgraded the country’s credit rating from Ba2 to Ba1, one level below investment grade. ✅ On the fiscal side, the primary result for August recorded a deficit of R$ 22 billion, totaling R$ 100 billion so far this year. To reach the projected target for the year, according to the RARDP, a surplus of nearly R$ 40 billion would be required in the coming months. ✅ In the United States, stronger labor market data are dispelling the recession narrative. Regarding monetary policy, the #FED is expected to opt for a gradual reduction in U.S. #interest rates, with two more cuts of 25 bps in the November and December meetings. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | Incorporating the revision of the Central Bank's output gap, #Selic is expected to reach 12.50% at the end of the tightening cycle - 09/27 ✅ In the September Quarterly Inflation Report, the #CentralBank highlighted the strong performance of economic activity in the first half and revised the output gap curve to the positive field. In terms of modeling, the increase in the output gap offset the negative effect of rising #interestrate expectations, with the 100-point cycle currently included in the Focus survey proving insufficient to anchor expectations, which remain above the target until the first quarter of 2027. ✅ Given this scenario and considering our #exchangerate expectation of R$ 5.50 for 2024, we revised our terminal rate from 12% to 12.50% at the end of the monetary tightening cycle, incorporating three more 50-point hikes in the upcoming meetings, with a final adjustment of 25 points in March 2025. ✅ On the #inflation front, we revised our expectation for the IPCA from 4.5% to 4.3% in 2024. For 2025, especially with the expected improvement in the hydrological scenario, ending the year with a green flag, we revised our estimate for the IPCA from 3.7% to 3.5%. ✅ On the fiscal side, the bimonthly revenue and expenditure report disappointed market expectations. Despite coherent forecasts for revenue reduction due to the CARF and an increase in pension expenditure forecasts, the report was marked by the reversal of a R$3.8 billion spending freeze, along with a contingency of around R$2 billion — when R$5 billion was expected — also interpreted as a lesser government commitment to public finances. ✅ Finally, in the United States, we revised our projection for the Fed Funds rate in 2024 to 4.25%. In the latest FOMC, the start of monetary easing with a 50bps cut signaled a frontload process in the conduct of U.S. interest rates, especially amid discussions about a possible recession in the country. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | Hawkish communication and significant rise in the inflation projections from the Central Bank's model suggest a more aggressive rate hike cycle - 09/20 ✅ In a week marked by #monetarypolicy decisions, the committee acknowledged the external environment as challenging. The #COPOM's reading of the #FOMC decision was that the current slowdown in U.S. economic activity and #inflation still raises doubts about the Fed's stance, keeping the external environment complex. ✅ In the domestic scenario, the greater dynamism of economic activity led the #CentralBank to revise the output gap into positive territory. In terms of modeling, the Central Bank's inflation projections stood at 3.5% in the relevant horizon of March 2026, prompting the committee to raise the interest rate by 25bps to 10.75%. ✅ Although it remains without providing guidance, the Central Bank's harsher communication indicated that the cycle should be larger than what the market expectations had priced in. Next week, with the meeting minutes and the Quarterly Inflation Report releases, the Central Bank’s informational set will be complete, providing details on the committee’s decision basis. Given this scenario, we revised our #Selic forecast for 2024 to 11.75%, with two more hikes of 50bps in the November and December meetings, followed by a 25bps increase at the first meeting in 2025, reaching a level of 12%. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

The new power broker in Brazil’s central bank, Gabriel Galipolo, has made a radical transformation to anti-inflation crusader over the past few weeks. “Galipolo is much more of a hawk now than a few months ago,” said Mirella Hirakawa, research coordinator at Buysidebrazil, an economic consultancy based in Sao Paulo. “There’s been a learning curve in his communication, with a very relevant watershed moment after May’s split vote.” “Earning credibility is costly, and Galipolo is in that process,” said Hirakawa, from Buysidebrazil. “He has to prove that he will be guided by the bank’s mission, which is to tame inflation, and not by a development agenda.”   Follow the full analysis in the article by Maria Eloísa Capurro na Bloomberg  

🔆 BUYSIDEBRAZIL | Weekly Report | We expect the Central Bank to keep the interest rate at 10.50% in the next COPOM decision - 09/13 ✅ Since the last meeting and considering the alternative scenario of a constant #Selic rate, the evolution of the variables observed by the #CentralBank would bring the #inflation model close to the target in the relevant horizon of March 2026. Thus, we believe that the #COPOM decision should follow the committee’s commitments to technical aspects, and we understand that the Central Bank will opt for greater predictability, without losing one of its main communication tools for a cycle of credibility. ✅ While our expectation is for stability, we recognize that the probability of an increase is significant. However, we believe that the arguments for maintaining the rate will prevail, especially focusing on the technical approach. ✅ Finally, in terms of communication, we believe the committee should endorse a hawkish tone. The Central Bank is likely to clarify that both monetary policy options, maintaining or raising the #interestrate, were debated, although the decision should be made unanimously. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets

🔆 BUYSIDEBRAZIL | Weekly Report | Economic activity surprises in the second quarter and raises growth forecasts for the year - 09/06 ✅ After stronger sector data in June, the #GDP for Q2 2024 confirmed the resilience of economic activity. Although a slowdown in fiscal stimulus and labor market growth is expected in the second half of the year, we have revised our GDP forecast to 2.9% for 2024. ✅ Regarding #inflation, we have revised our 2024 forecast from 4.5% to 4.6%, considering the impact of changes in tariff flags this year. ✅ In the #UnitedStates, employment data showed a gradual weakening, reinforcing the expectation of a more moderate pace at the beginning of the rate-cut cycle in #FED Funds. Therefore, we maintain our view of the start of the monetary easing cycle in September, following a pace of 25bps until the end of the year. For more information, enter www.buysidebrazil.com #FX #brazilianeconomy #emergingmarkets #financialmarkets