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quarta-feira, março 11, 2009

Our Mood for today

What a tremendous rebound! Better than expected! The recovery was really
astonishing and brings some hope at least for the near term. The good mooed
should persist during today's trading session boosting the performance of
all markets. Good!

TODAY IS THE DAY! The Central Bank's Monetary Policy Committee (COPOM)
holds its regular rate-setting meeting today. The global economic outlook
has deteriorated in recent weeks, with multilateral organizations revising
down their forecasts for GDP growth and international trade flows dropping
sharply. This will mean significantly less demand for Brazilian exports. As
mentioned yesterday, industrial production came in surprisingly low in
January on IBGE's reading, which displayed a rebound of only 2.3% from the
depressed level seen in December. Various industries are facing
difficulties in resuming production because inventory levels are considered
high. The domestic market alone has not so far been capable of absorbing
the goods produced, even though domestic demand does not seem to have
contracted significantly. On the contrary, it has been strengthened by the
generous minimum wage hike implemented in February. The global economy is
in shock, justifying an interest-rate shock in Brazil to adjust it to the
new macroeconomic conditions. As you may know we have revised our
expectations for this meeting. We now expect the committee to cut the SELIC
rate not by 100 basis points but 150 bps to 11.25% p.a., and believe
another cut of the same size is highly probable at the next meeting in
April, completing an easing cycle of 400 bps and taking the SELIC to 9.75%.
Let's wait and see...

The first March preview of IGP-M fell 0.45%, below our forecast (-0.11%)
and the median market expectations (-0.13%). This compares with a rise of
0.42% for the first February preview. Wholesale prices continued to fall,
led by a downturn in farm prices (from 1.49% to -2.09%) due mainly to
falling prices of some grains, especially soybeans.

IBGE has also announced this morning the February IPCA. It came in line
with the average market expectations at 0.55% (we were expecting 0.57%),
accelerating from 0.48% in January. As for the preview, annual school fee
hikes were the main source of upside pressure, accounting for about 50% of
the month's inflation. On the downside, food inflation cooled thanks to
falling prices of some items of fresh produce and meat. Other sources of
downside pressure were the dilution of January's hikes in intercity bus
fares and bus fares in several cities (Rio de Janeiro, Belo Horizonte,
Salvador and Belém), as well as a seasonal fall in clothing prices.

Analyzing each market now:

- Currency Market: We expect a continuity of the BRL appreciation during
today's trading session.

- Interest Rate Market: COPOM meeting! The inflation numbers released today
just reinforce our call for a more aggressive approach of the CB on the
easing cycle. We can say that the majority of market players are betting
today on a 150 bps cut. The JAN 10 DI Contract is already reflecting that
expectation. We think is a good opportunity to take some profit and reduce
the position during the day on the expectation of the COPOM announcement at
the end of the day.

- Stock Exchange Market: What a performance! That should continue during
today's trading session in line with the good mood abroad.

- Sovereign and Corporate Debt Market: The Market recovery helped also the
sovereign performance. BR40 are now currently being traded around the
122.10 levels and the 5Y CDS around 384 bps. That movement should continue
today on the back of the decrease of risk aversion by investors...


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