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Rabobank analysts point out that last week was another negative week for Brazil’s national assets in general, amid continued signs of strains in the relationship between Executive and Legislative branches.

Key Quotes

“The tensions have apparently spilled over into the transiting of the pension reform in the Lower House, as a commission voting was postponed for next Tuesday. What’s more, the government may possibly have to compromise in a few topics at relatively early stages.”

“Our baseline scenario continues to assume an effective pension reform (with savings BRL 700 billion in 10 years, 30% less than the current proposal), probably sometime in October (this is consistent with our BRL projection at 3.70 for the end of this year). Yet the slow-moving negotiation is poised to keep feeding higher perceptions of execution risks.”

“On Tuesday, the House’s Constitution and Justice Commission (CCJ, in Portuguese acronym), is scheduled to vote on the constitutionality of the government’s pension reform proposal. This event may convey some signals (about the reforms outlook) to the markets.”

“The calendar for the coming week brings a few noteworthy macro releases (on inflation, activity, balance of payments). These reports are secondary market drivers (if at all), as local markets keep eyeing the political environment for the pension reform.”