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1/2: Assets Tumble As Fiscal Fears Become Reality

BRAZIL
  • Brazilian swap rates came under significant pressure on Thursday, with contracts expiring in Jan '23 rising close to 100 basis points at their worst point and closing in on 11%, the highest level since October 2018.
  • In tandem, the Brazilian real declined by another 1% bringing USDBRL back above 5.65. Local equities also took a plunge, with the Ibovespa index down over 4% at one point, reaching the lowest level for 11 months.
  • On the fiscal front, what appears key is not just the already outlined additional spending above the cap from this program (which markets had largely been expecting), but the potential for other increases. Local newspaper O Globo has reported that parts of the government and Congress are already working on more measures to be left out of the spending cap. And as a result, local asset prices are reflecting a worrying precedent being set.
  • In the aftermath of the announcements, four members of the team that reports to Economy Minister Paulo Guedes stepped down on Thursday.
    • Economy Ministry Special Treasury Secretary Bruno Funchal, and the Treasury Secretary Jeferson Bittencourt asked to step down for personal reasons. Special Deputy Secretary of the Treasury and Budget, Gildenora Dantas, and Deputy Treasury Secretary Rafael Araujo, also tender resignation – according to a statement.
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