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segunda-feira, junho 29, 2009

Our mood for today

Good Morning!

The discussions around here reflect our optimism related with the Brazilian Economy and future perspectives. On the Interest Rate Market last week Central Bank Inflation Report has opened doors for future SELIC cuts and a continuity of the easing cycle affecting certainly next meeting but maybe the next one also (on September). Market should price another 50 bps cut on July but it seems that another cut should not be discharged going forward taking into consideration the Inflation Expectations reflected on the Report. The speed of the economic recovery (slowly) should also reinforce this view and put some pressure on the downside movement of the DI curve. We continue thinking that the LONG position on the JAN DI 12 contract is still attractive at current levels. However even on the short end of the curve some premium could be found if you consider 50 bps cut on the next COPOM meeting. Regarding the Currency Market the good trend of the BRL should also be sustained and the 1.80 levels represent today the biggest support to be achieved. Regarding the stock market, Foreigner Investors are back to the game and last week VISANET IPO (the biggest of the World during 2009) and MRV Offer, corroborate the good perception of Brazil and its possibilities. Despite expecting some reduction of the inflow during the vacation period on the North Hemisphere, this is not the case when we consider new issues (with room for appreciation) and offerings (with some price discount when compared with current market prices). "No vacation, show me a good opportunity that I'll certainly analyze..." That is our client's moto...

The June IGP-M fell 0.10%, close to our forecast (-0.05%) and practically repeating May (-0.07%). In wholesale, farm prices remained under pressure from dearer milk, as well as a seasonal deceleration of the fall in permanent crops, especially coffee, oranges and papaya. On the downside, industrial prices fell faster thanks to mining and metals, chemicals and petrochemicals. Relief in upside pressure on the retail component (IPC-M) came mainly from a dilution of the recent hikes in water and sewerage, electricity, medications and cigarettes. The construction industry component (INCC-M) remained under stronger upside pressure due to pay awards to engineers and other professionals in some cities, especially São Paulo, which has a significant weight in this component of the index.

Today the Central Bank will release the consolidated public-sector primary result for May. Based on the central-government result announced last week, we estimate a surplus of R$4.5 billion. This public-sector surplus will have been due mainly to regional governments, with an estimated surplus of R$3.2 billion reflecting a large volume of transfers in the month. If correct, the above estimate takes the 12-month surplus to 2.8% of GDP, down from 3.1% in April but still above the year-end target of 2.5%. The fall in the primary surplus will contribute to a rise in the nominal deficit, estimated to have reached 2.5% of GDP in the 12 months to May. Public-sector net debt will have risen to about 39% of GDP, from 38.4% in April.

Analyzing each market now:

- Currency Market: Let's BUY BRL!!!! Next first support is around 1.93 levels and next resistance one around 1.97.
- Interest Rate Market: We uphold our call and consider that some LONG position should now be considered on the JAN 12 DI contract...
- Stock Exchange Market: We expect a continuity of the good mood during today's trading session.
- Sovereign and Corporate Debt Market: The good performance should be sustained during today's trading session. Brazil 5 Y CDS is trading around 177 bps (-3bps) and BR40 around 224 SOT (-10 bps).

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