MNI China Daily Summary: Thursday, July 25

MNI BRIEF: Japan Govt Keeps Econ View, Cuts Exports

MNI: PBOC Conducts CNY200 Bln via MLF Thurs; Rate Cut

MNI: PBOC Sets Yuan Parity Lower At 7.1321 Thurs; -1.92% Y/Y

CHINA PBOC CONDUCTS CNY235.1 BILLION VIA 7-DAY REVERSE REPOS THURS

CHINA SETS YUAN CENTRAL PARITY AT 7.1321 THURS VS 7.1358

CBI Price Expectations for Three Months Ahead Lowest Since December 2020

MNI: UK JUL CBI INDUSTRIAL TRENDS TOTAL ORDERS -32

Broad-Based IFO Weakness Reinforces Narrative of Recovery Stall

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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UBS Revise Quarter-End USD/BRL Forecast To 4.50

BRAZIL
  • Three forces are currently driving the BRL: foreign capital flows into the equity market; record-high trade surpluses thanks to the commodity price boom; and one of the highest real rates in the world.
  • The BCB recently hiked the policy rate by another 100bps, to 11.75%. Given rising inflation expectations, we think the Selic will rise to 12.75% by May and stay there for a while.
  • UBS revise their quarter-end USDBRL forecast to 4.50 for 2Q and 3Q, and 4.75 for 4Q, versus a previous forecast of 5.25 across the board. Their 1Q23 forecast is 5.00.
  • GDP growth expectations for 2022 have stabilized close to 0.5%, and inflation expectations are still going up at 6.5%. Unemployment is back from pre-pandemic levels, so the labor market has been heating up, but inflation and rates will be a drag to activity this year. Brazil's trade surplus is expected to be USD 75bn in 2022, a record high thanks to higher volumes and commodity prices.
  • Former President Lula da Silva and President Jair Bolsonaro are the most likely names to be in the ballots for the run-off on 30 October; no other candidate has been able to gain voting intentions so far in the year. UBS see little impact in the markets coming from the elections.
  • Tax revenues continued to expand at a robust pace of 13% year-over-year in February. Revenues coming from commodities like royalties are the main factor. Although Brazil's fiscal challenges are unlikely to go away any time soon, UBS expect the next government to keep the main pillars of fiscal responsibility, albeit through a different fiscal framework.
  • The main risks to their view are a domestic economic slowdown due to higher inflation, energy rationing, or a new wave of COVID-19, which could lead to further fiscal spending, delays in reforms, and increased political uncertainty.
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