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Local Assets Thrive As Fiscal Details Await

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  • No news appears to be good news in Brazil as market participants await the details of the new fiscal framework. Lower volatility and attractive carry continues to support the Brazilian Real. Additionally, its regional peer MXN continues to outperform and print fresh cycle highs in recent trade.
    • On the downside in USDBRL, initial support has been tested at 5.1106, the Feb 23 low. A sustained break of this level would signal scope for a return to 4.9410, the Feb 2 low.
  • There has been an impressive rally across the DI curve with front-end DI swap rates falling as much as 25 bps. The front-end of the DI curve continues to reflect the administration’s rhetoric surrounding the need for lower interest rates and their hope that an improved fiscal outlook will provide the BCB with the opportunity to ease policy. The belly and long-end slightly more reflective of the reversal in UST’s. Worth noting the Ibovespa equity index is also posting 2% gains on Wednesday
  • Friday’s IPCA inflation data no doubt in focus and constant attention on the latest set of expectations in the BCB’s Focus Survey (specifically medium-term) as this seems to be critical for the central bank, as noted in the latest statement. For reference, the next BCB meeting is on March 22.
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  • No news appears to be good news in Brazil as market participants await the details of the new fiscal framework. Lower volatility and attractive carry continues to support the Brazilian Real. Additionally, its regional peer MXN continues to outperform and print fresh cycle highs in recent trade.
    • On the downside in USDBRL, initial support has been tested at 5.1106, the Feb 23 low. A sustained break of this level would signal scope for a return to 4.9410, the Feb 2 low.
  • There has been an impressive rally across the DI curve with front-end DI swap rates falling as much as 25 bps. The front-end of the DI curve continues to reflect the administration’s rhetoric surrounding the need for lower interest rates and their hope that an improved fiscal outlook will provide the BCB with the opportunity to ease policy. The belly and long-end slightly more reflective of the reversal in UST’s. Worth noting the Ibovespa equity index is also posting 2% gains on Wednesday
  • Friday’s IPCA inflation data no doubt in focus and constant attention on the latest set of expectations in the BCB’s Focus Survey (specifically medium-term) as this seems to be critical for the central bank, as noted in the latest statement. For reference, the next BCB meeting is on March 22.