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quinta-feira, janeiro 28, 2010

Our Mood for Today 28.01.10

Yesterday the Central Bank confirmed market expectations with the maintenance of the SELIC RATE at 8.75% until the next meeting. However the big difference was the brief statement after the meeting just highlighting that the participants voted together (unanimity) and that the CB would analyze future economic indicators to decide future steps regarding monetary policy maneuver. Some traders are already postponing any change of the SELIC RATE to the April meeting instead of the March meeting after this result. Particularly I think it's the right thing to do at this moment. One important factor to corroborate the sustainability of the SELIC RATE for another period (after the March meeting) was the Government announcement that they should adopt a more conservative approach in terms of Government Expenses. Finally they are starting to collaborate with the CB on this process with some fiscal responsibility. They intend to limit expenses at least until next march and this is something important and is already affecting the Interest Rate Market with rates suffering some downside pressure.

The January IGP-M rose 0.63%, above our estimation (0.53%), accelerating from last month reading (-0.26%). In wholesale, industrial prices have risen after a two-month slide, owing mainly to processed foods, chemicals and metallurgical products. Farm prices have fallen less than in December (-1.47%) because of less deflation in potatoes and a rise in rice, beef and pork. The retail component (IPC-M) displayed sharp acceleration led by the bus fare hike in São Paulo and the annual school fee reset. The construction industry component (INCC-M) has accelerated marginally in response to pressure from some building materials.

The Central Bank announces the final results for public finance. We estimate a small surplus of R$1.0 billion for the consolidated public sector in December, thanks to the state-owned enterprises as well as central government, since regional governments are expected to display a primary deficit in the month because of the usual year-end increase in expenditure. This monthly result will have taken the annual primary surplus to 2.1% of GDP, within the range already indicated by the treasury secretary. We also estimate a nominal deficit of R$14.5 billion in December, leading to an annual deficit of 3.35%, up from 1.9% in 2008. Given this nominal deficit, the ratio of net debt to GDP will have remained stable compared with November on 43%.

IBGE publishes its monthly survey of employment (PME) for December. We estimate an unemployment rate of 6.6%, compared with 6.8% in December 2008, and the lowest of any monthly reading in the series in absolute terms. After seasonal adjustment, however, it is set to remain unchanged on 7.8%. This movement is typical of the period and reflects a reduction in the size of the workforce due to the fact that fewer people look for work at this time of year. With regard to regularly paid wages and other earnings, we expect this month's reading to remain basically stable, with a minor negative fluctuation of 0.1% at the margin and a rise of about 2% year over year.

Analyzing each market now:

- Currency Market: After reaching the range level we have mentioned before (1.85 - 1.90) we reinforce our call and recommend the SHORT positioning on the USD. Let's BUY BRL!

- Interest Rate Market: As mentioned above market expectations should favor some position on the JAN11 DI Contract (receive Rates).

- Stock Exchange Market: We think it is a good moment to get in and start some LONG position at current levels...

- Sovereign and Corporate Debt Market: The bond market continues to suffer. I keep my call and think we should consider some positioning at current levels after the sell-off. Brazil 5Y CDS is trading around 137.4 bps (flat). BR 40 is trading around 154 bps (+2 bps).

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