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Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, suggest that the failure to hold a CCJ vote last week is evidence that the challenging political landscape in Brazil renders pension reform less likely to be passed before the summer recess.

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“Sluggish growth, low yields, and hand-wringing over the reform process leave little good near-term news on the horizon for BRL, while equities and fixed income appear to be “priced-to-perfection” insofar as an optimistic pension reform is concerned.”

“We expect a middling outcome for the reform, at a net savings in the realm of 650bn-750bn reais over the next 10 years. While we suspect this would be neutral for equities and fixed income, there is more risk premium to be captured in BRL which may present an opportunity in the second half of the year under a neutral-to-constructive reform outcome. Until the expected reform however, we see weakness in the real taking USDBRL back to 4.20.”