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quinta-feira, junho 18, 2009

Our Mood for Today

Good Morning!

Want to share with you some comments of the Chief Economist of Banco Votorantin regarding the COPOM Minutes: "The Central Bank released this morning the minutes from the latest COPOM rate-setting meeting, held on June 9-10. A majority decided to continue easing by again lowering the target for the Selic rate by 100 basis points to 9.25% per annum. Six members voted in favor, with two voting for a cut of only 75 bps. Because of the strong monetary policy easing implemented since January, with effects that will be shown at the end of 2009 and particularly in 2010, two directors argued that it would be appropriate to reduce the pace of monetary easing, i.e. with a cut of 75 bps, continuing the adjustment with a more moderate policy. However, the majority of the committee decided to maintain the pace of decline because of inflation expectations, which continues below the target for 2009 or close to it for 2010 (market scenario). It is important to emphasize that there was a consensus among members on the timing of the monetary easing. Therefore, we believe the Copom will decide for a 50 bps ease in the next meeting due on 21 and 22 of July, bringing the current easing cycle to an end with the Selic rate on 8.75%. When that happens, we expect the Copom to hold rates steady while seeing how the economy reacts to historically low rates."

June IGP-10 fell 0.03%, we expected a 0.25% hike. In May the index rose 0.17%. This reversal was due mainly by a deceleration in wholesale prices. Farm prices cooled thanks to relief from soybeans, maize and sugarcane, but industrial prices kept falling due to a sharper fall in chemicals, metals and electronics, as well as processed food. For retail prices, despite water and sewerage rate hikes in some state capitals, the retail component as a whole (IPC-10) was relieved by a drop in prices of some unprocessed foods, such as fruit and vegetables, as well as dilution of cigarette and medication price hikes in previous months. The construction industry component (INCC-10) remained under upside pressure from pay awards to engineers and other professionals in several cities, especially São Paulo, which has the largest weighting.

Analyzing each market now:

- Currency Market: Market yesterday was a little strange and in fact despite our intention to keep the LONG position in BRL we have reduced the total amount of it (a conservative measure). It seems that after the last COPOM meeting, the decrease in rates have already reduced some impetus of the BRL. Considering also the volatility increase of the USD as a reflection of recent Treasuries movement, a more conservative position is really necessary...

- Interest Rate Market: Market should reflect the COPOM Minutes and some steepening of the curve is expected during today's trading session. However, depending on the recovery speed around here, we should have some resilience of the SELIC Rate at low levels and the long end of the curve should therefore present also some rate reduction going forward. To be confirmed...

- Stock Exchange Market: Market in here should continue trading in line with US Market...

- Sovereign and Corporate Debt Market: Brazil 5 Y CDS is trading around 190 bps (-2bps) and BR40 around 247 SOT (+3bps). Yesterday Eletrobras´ CFO has mentioned his intention to issue almost USD 1 bi of a new 10Y bond. As we have mentioned before they have mandated Credit Suisse on the beginning of this year but due to internal process the issue was postponed. According with the CFO Eletrobras could tap the market until the end of July or in September. Let's keep our eyes open...

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