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quarta-feira, janeiro 27, 2010

Our Mood for Today 27.01.2010

We have quite a lot of reasons to be cautious considering the news coming from several places in the world. Some of them are much more macro themes that affect all the markets and countries like the fiscal situation of some Developed Countries (Japan (outlook change), Spain), also the problems of Greece (even after the Bond Sale). The slowly recovery process of UK economy... Others, despite disturbing the entire world are affecting much more Brazilian Markets, notably China's measures to reduce the lending market until the end of this week. However, it's important in my point of view not forget the specific characteristics of each country and future perspectives. And again my point is that probably Brazilian Assets are again suffering from the liquidity problem being one of the best options for investors to get advantage of future downside movements. Will this movement continue? My feeling is that we are approaching a turning point after the sell-of that has started last January 11th. Nevertheless this movement should not be the same for all the assets and markets. My bet is that the Emerging Nations and markets with good economic perspectives and a huge local market should be the first ones to recover after the recent downside movement. Also the movement should differ when you compare the fixed income market and the equity market with the last one continuing to present a high volatility. To be confirmed...

The third four-week moving average of IPC-FIPE (this index covers only the city of São Paulo) for January rose 1.16%, below our estimate of 1.26% and accelerating from a week earlier (0.85%). Transport have contributed with about half of the index, owing to the impact of the bus fare hike and accelerating fuel prices (ethanol and petrol). Food inflation has continued to accelerate, reflecting increased pressure from milk, rice and beans, among other items. The annual school fee reset also has contributed to the rise in inflation on this measure.

The Treasury announces the central-government primary result, which we estimate to have been a surplus of R$1.1 billion. The Treasury itself will have booked a small deficit in December, despite proceeds amounting to R$3.5 billion from the sale of dividend rights to BNDES, the national development bank, on the last day of the year. Thus the main reason for the positive result in the month will have been a R$1.8 billion social security surplus, already announced. The 2009 result for social security was a deficit corresponding to 1.36% of GDP, only slightly up from 1.2% in 2008, because of another sharp hike in the minimum wage, while revenue grew more slowly owing to the recession in the early part of the year. The same applies to the Treasury in 2009: expenditure grew as fast as in previous years, whereas revenue contracted moderately as a reflection of the crisis and economic slowdown.

The Central Bank of Brazil's Monetary Policy Committee (COPOM) holds its first regular rate-setting meeting of 2010 this week. We expect the Selic target to be left unchanged at 8.75% p.a., where it has been since mid-2009. As mentioned yesterday more important than the Selic target will be the wording and tone of the post-meeting statement, which is likely to be significantly different from previous statements, probably signaling the onset of the long-awaited tightening cycle. We continue to expect this in April, but another school of thought holds that tightening will begin in March. Subtle details of the wording may signal the COPOM´s intent in this regard. The latest Inflation Report itself displayed interesting changes in wording, which will probably be reflected in the COPOM statement and minutes. Recent price index readings have been showing signs of rising inflationary pressure, albeit mostly due to localized or temporary factors. Various price hikes and tariff resets at the start of the year, alongside pressure on food prices due to adverse weather, will almost certainly mean higher inflation readings in January and February than expected a few weeks ago. This affects expectations regarding future inflation, which in Brazil are still intensely influenced by current inflation. Moreover, inflation is already fluctuating around the mid-point of the target band, so any increase in pressure sufficient to push it up above that point, will be a concern for the Central Bank right at the start of the year. On the other hand, economic activity indicators have displayed weaker behavior recently, and this could be seen as an argument to offset some of the pressure.

Analyzing each market now:

- Currency Market: Perspectives of this market has changed clearly on the last couple of weeks. New resistances should be tested going forward. The 1.85 level is the first one and should be surpassed. In fact our opinion is that the 1.85 - 1.90 range should be probably the new range for the currency on the near future. However particularly I think that at current levels (1.846) we should think about start building a SHORT Position on the USD against the BRL. The good momentum of Brazil should continue and the Interest Rate Differential is a good reason to be positioned on the BRL...

- Interest Rate Market: Let's wait the statement of the COPOM meeting. We do not recommend any position for a while...

- Stock Exchange Market: Considering the future markets, some relief should not be discharged for today's trading session. However this is not a consensus around here and the mood and performance abroad should be an important trigger for the local market...

- Sovereign and Corporate Debt Market: My particularly opinion is that the Brazilian Names have already suffered a lot on the recent sell-off movement and should at least present some stabilization at current levels. On the road we have Banco Pine with a 7Y Subordinated Debt. My opinion is that considering whispers around mid to high 8% they should find buyers for the USD 150 mm deal. However I do not expect any major order coming from private clients but instead HY investors that are searching for yield pick ups at this moment... To be confirmed... Brazil 5Y CDS is trading around 137.4 bps (+2 bps). BR 40 is trading around 157 bps (+1 bps).

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