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Renewed Optimism Significantly Boosts Local Assets

  • The main drivers behind this week’s rally appear to be The Workers’ Party demonstration that it is open to negotiations over plans to pave the way to higher fiscal spending by excluding some expenditure from the spending cap rule.
    • Reports indicate that the party might exclude only 150b reais, instead of 198b reais, and for only two years instead of four which is partially removing some of the risk premium for local assets that has become embedded in recent weeks.
  • USDBRL, after opening the week just above 5.42, has seen a near 3% decline to close just above 5.28 on Tuesday. More significantly, the DI swaps curve enjoyed a very impressive session with swap rates in the belly and the long end falling between 56-47 basis points. Lower than expected wholesale price data acted as an additional tailwind for the rally in rates.
  • Initial firm support for USDBRL is unchanged at 5.2445, the Nov 10 low and the next target would be the 200-day moving average which resides around 5.1100.
  • Today, Petrobras’s board holds meeting to define the company’s new strategic plan, which should be disclosed in details on Thursday.
    • - 1200GMT/0700ET: Oct. National Unemployment Rate, est. 8.5%, prior 8.7%
    • - 1230GMT/0730ET: Oct. Public Borr. Primary DE Monthy, est. 27.1b, prior 10.7b
    • - 1230GMT/0730ET: Oct. Nominal Budget Balance, est. -13.6b, prior -60.6b
    • - 1230GMT/0730ET: Oct. Brazil Public Net Debt %GDP, est. 58.1%, prior 58.3%

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