Brazil: Real activity takes center stage – Rabobank

Last week was a positive one for Brazilian economy and assets as he data pointed to further improvement in real activity and still low (headline and core) inflation; the central bank delivered another rate cut, explains the analysis team at Rabobank.

Key Quotes

“On the reform front, Congress concluded the voting of MP 777, streamlining the framework for credit subsidies, with positive consequences for fiscal and monetary policies. Brazilian assets rallied, with 5-year CDS reaching 180bps, lowest level in almost three years, and USDBRL falling below the 3.10 mark (the lowest since March).”

“For this week, the highlights are the minutes of last week’s Copom meeting (Tue) and the IBC-Br broad activity index for July (Thu). We expect the Copom to reaffirm its plan to ease the pace of cuts as the end of cycle draws near: we look for Selic rate at 7.0% for the end of year and cycle. The activity figures are about to confirm an improved momentum in the 17Q3: we look for a GDP growth of 0.1% for the quarter, consistent with an annual reading of 0.6%.”

“On the political front, the Lower House will continue to discuss the political reform, a pre-condition to restart discussions/negotiations for the pension system overhaul. While the PGR might present new charges against the presidency, the Executive is now seen in (even) stronger political position to block this new charge, after the recent developments.”