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segunda-feira, março 09, 2009

Our Mood for Today

Our FOCUS today is totally local. The great Issue of the week in Brazil is
certainly the COPOM meeting that will release on the next Wednesday the new
SELIC rate for the subsequently 45 days. Recent economic developments
around here have changed dramatically the expectations for the result of
that meeting. If 75 bps was something usual right after the last meeting,
today several analysts and banks have changed their forecasts and it has
reduced the number of analysts considering 100 bps as an obvious decision
and 150, 200 bps are already being discussed. We have changed our forecast
and expect 150 bps for this meeting and another 150 bps for the next one (a
total of 400 bps easing cycle - check our Weekly report sent to you
previously).

Another important issue that is currently on everybody's radar around here
is the reduction of Government's Revenue triggered by current economic
environment. In fact some government analysts are considering already some
decrease on the Primary Surplus during 2009 due to the lack of Revenues
faced during 2009 (some discussions consider a reduction of the Primary
surplus from 3.8% to 2.8%). One important measure that should help the
Government Maneuver of this issue is the stronger decline of the SELIC Rate
until the end of the first semester. Some players are already expecting
that rate achieving 9.75% in June! The consequence is a reduction on
Government Expenses with its Debt Service and would help a lot to
compensate the Revenues Decrease. Government Officials have pointed that
they would wait the COPOM meeting result and also the 2008 GDP Release to
determine new numbers and goals for 2009.

The February IGP-DI fell 0.13%, below our expectation (-0.04%), and the
median market expectations (0.10%). In January the index rose 0.01%.
Wholesale deflation diminished (from -1.16% to -0.29%) because of a
weakening fall in industrial prices for petrochemicals, chemicals and pulp.
As for farm prices, the sharp rise seen in January (2.07%) was reversed to
-0.36% thanks to falling prices of maize, rice, meat, dry beans, and above
all soybeans. Retail prices were relieved by dilution of annual school fee
hikes and a seasonal fall in clothing prices. Food prices were under less
pressure owing to falling prices of meat and some items of fresh products,
such as fruit and potatoes. Finally, less variation in labor costs weakened
the construction industry component (INCC).

The first four-week moving average of the IPC-S for March rose 0.35%, as
expected. In February the index rose 0.21%. This acceleration was due
partly to the usual weighting update, alongside higher prices of some
unprocessed food items.

CNI will publish this afternoon its monthly survey of the industrial sector
for January. Matching the weak results presented last week by IBGE, this
survey - which covers real sales, hours worked in production and
employment, among other items - is also expected to be negative overall.
CNI's measure of capacity utilization, also included in the survey, fell
sharply at the end of last year. Correlated indicators suggest it will
again fall on this reading, probably to less than 80% (from 80.2% in
December).

Also this afternoon will be released Anfavea's complete statistics for the
automotive industry in February. Vehicle sales rose 0.9% in the month and
fell 0.7% year over year according to Fenabrave. This suggests that the
incipient recovery in demand may be continuing. We believe production will
have followed the same trend, rising moderately in February compared with
January. Inventory levels will have remained stable.

Analyzing each market now:

- Currency Market: We expect some BRL depreciation during today's trading
session. However even with a bigger cut of the SELIC Rate on the next COPOM
meeting some market participants are considering future appreciation
against USD on the medium term. To be confirmed...

- Interest Rate Market: As mentioned above we have changed our forecast for
the next COPOM meeting and for now on we are expecting 150 bps cut.

As mentioned previously, recent economic numbers should increase the bets
of a more aggressive approach by the Central Bank with more cuts going
forward. That is currently occurring. Our LONG strategy continues to be
very profitable! We uphold our call and recommend a LONG position
especially on the JAN 10 DI Contract.

- Stock Exchange Market: Market should perform in line with US. We can't
see any local trigger to drive some specific movement during today's
trading session.


- Sovereign and Corporate Debt Market: We expect a flat market during
today's trading session, almost in line with Friday's session.

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