Analysts at Rabobank note that last week was another mixed week for Brazilian assets as on one hand, the Ibovespa stock index pared recent losses with a nearly 4% gain and nominal yields bull flattened (down 20 to 45bps).
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“Recent BCB communications gave the markets the (stronger) impression that, except for a massive deterioration in market conditions and an important spill over into expectations, and despite the lack of a forward guidance this time, the Copom is poised to hold Selic rate stable ahead.”
“On the other hand, 5-year CDS rose slightly (+5bps to 270bps) as electoral surveys continue to point to high political uncertainty (especially when it comes to the execution of economic reforms in 2019) and BRL stood among the worst performing major currencies for the week. It lost 2.3% to 3.88/USD, with peer-currencies down nearly 1% vis-Ã -vis the USD.”
“This week’s calendar features June IPCA inflation (Fri) and May industrial production (Wed). Both reports are expected to reflect the noisy economic impact from the truckers’ strike.”
“We project a hefty IPCA gain of 1.37% m/m, taking the annual reading up to 4.5 y/y (from 2.9% y/y in May), dead at the BCB’s inflation target (4.5% with a leeway of +/- 1.5 p.p.).”
“As per the industrial production, the street is looking for a sequential slump around 14% m/m, as industrial (and overall) activity was temporarily halted in the end of last month.”
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