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Softer Risk Backdrop Likely To Weigh on BRL, COPOM Decision Eyed

BRAZIL
  • A volatile session for USDBRL on Friday, up close to 2% at one point with heavy commodities (in particular iron ore), higher US yields and dampened risk sentiment all working against the local currency.
  • Intensifying concern about China Evergrande Group's debt crisis dragged down local stock markets overnight which will likely weigh on BRL at the open as EMFX struggles to start the week.
  • As well as the FOMC, strong focus on the BCB rate decision this week where despite Governor Campos Neto tempering expectations for more aggressive action, some analysts are predicting accelerated aggression from the central bank, favouring 125/150bps rate hikes at the September 22 meeting.
  • Today, the Central bank releases the final Focus survey which will provide the final piece of the inflation expectations puzzle before Wednesday's decision.
  • The Copom decision and statement will precede Friday's release of mid-month IPCA inflation data where the annual headline rate is expected to rise once more to 9.94%, close to six-year highs for the metric.
  • *Late Friday, headlines were released indicating that Brazil's government is negotiating with congress and courts a temporary, one-time exception for part of the 2022 court-ordered payments known as precatorios to remain outside the country's spending cap rule, according to a person with direct knowledge of the discussions. (BBG)
    • The idea is to keep part of the 89b reais in precatorios, which were not fully forecast for in the 2022 budget, outside the rule that limits govt spending.
    • The exception needs to be linked to the creation of a permanent solution for these expenditures.
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