Bolsonaro struggles to sell Brazil pension bill as markets tumble

Brazilian President Jair Bolsonaro and his economy minister tried to rescue their contentious pension reform bill on Wednesday, as deepening political chaos surrounding the government’s signature proposal slammed Brazilian markets.

Bolsonaro again warned that failure to overhaul the creaking social security system would bankrupt the country, while Economy Minister Paulo Guedes said he would quit if the president or Congress chose not to follow his policy recommendations.

Brazilian financial assets tumbled. The real fell to a nearly six-month low against the dollar, while the Bovespa stock market slumped 3.6 percent. Bond yields and market-based interest rates also climbed steeply.

Voters elected Bolsonaro to end years of graft and rising violence, and kick-start the economy. But as his inexperienced government has become increasingly swallowed by infighting, his poll numbers have dropped and investors are beginning to wonder whether he can deliver.

The president waded into the debate after a bruising 24 hours for his government that highlighted the uphill political battle required to pass an ambitious legislative agenda.

Guedes told a Senate committee that Bolsonaro’s government was failing to convince lawmakers of the merits of his plan to save over 1 trillion reais ($250 billion) over the next decade, squandering the political capital won in the elections.

“If the president supports the things that I believe can help Brazil, I will be here. But if neither the president nor the House nor anyone else wants that, I will go back to what I was doing,” Guedes told the Senate Economic Affairs Committee.

Guedes had skipped a congressional hearing on the pension proposals on Tuesday, while a bloc of 11 political parties demanded the removal of changes affecting rural, elderly and disabled Brazilians.

A measure on Tuesday by lawmakers to seize more control over the federal budget in coming years also received near-unanimous approval by the lower house of Congress.

Rodrigo Maia, who as speaker of the lower house is in charge of guiding the pension bill through Congress, on Wednesday denied that vote handicapped the government.

Bolsonaro said he would meet with Maia next week to discuss the growing crisis. But the president’s tweets and comments have riled the speaker.

“Let’s stop kidding around and let’s work seriously,” Maia said late Wednesday. “Brazil needs a functioning government … and the president is playing around with the presidency of Brazil.”

Bolsonaro, who nearly died from a stab wound during last year’s election campaign, said in a TV interview that his health had impaired his work leading the government.

On Wednesday, after he underwent a medical checkup, the Sao Paulo hospital that operated on him said he was in “excellent clinical condition.”

The Brazilian real on Wednesday plunged 2.3 percent to close at 3.9531 per dollar. After spot trading but while Guedes continued his contentious Senate hearing, the currency slipped in the futures market past 4.00 per dollar.

After markets closed, Brazil’s central bank stepped in to slow the slide, announcing a Thursday auction to sell $1 billion in the spot market with an agreement for future repurchase.

The benchmark Bovespa stock index nosedived 3.5 percent, and has now shed 8.5 percent in just over a week.

Interest rate futures jumped as investors bet a delay and dilution of fiscal reforms may force the central bank to raise interest rates. The April 2020 contract rose to 6.75 percent, meaning a rate hike within a year is fully discounted.

“We still think ‘sausage making’ is in full process, where any headlines will lead to volatility in the real, and setbacks like this could continue in the coming months,” said Citi strategists in a client note on Wednesday.

“We remain on the sidelines,” they said.

 

Source: Reuters

“We are pleased to advise that Murray – Advogados has been appointed again by the British publication Latin Lawyers among the most recommended Law Firm in Brazil.

Our partner Alberto Murray has also been appointed, once more, by Who’s Who Legal, among the most recommended attorneys in corporate law and corporate governance

We thank our colleagues, partners, clients and friend for all support”

.

Interview: Brazil major beneficiary of Belt and Road Initiative, says expert

Brazil stands to be one of the major beneficiaries of the China-proposed Belt and Road Initiative (BRI), which is in line with the government’s economic development plan, Brazilian expert Xia Huasheng has said.

The Belt and Road cooperation with China helps boost Brazil’s agricultural exports and attracts investment for infrastructure construction from Chinese multinationals, which brings resources, experience and technology, Xia, a professor of finance at the Sao Paulo School of Business Administration under the prestigious Getulio Vargas Foundation (FGV), told Xinhua in a recent interview.

“Within the framework of the Belt and Road Initiative, the majority of projects are related to infrastructure,” he said, noting strengthening infrastructure is essential to Brazil’s economic recovery.

“The new Brazilian government wants more investment in infrastructure projects,” he added.

Xia said the BRI is also in line with the pro-market policies of Brazilian President Jair Bolsonaro, who took office on Jan. 1.

“The participation of Chinese multinationals is essential” to bilateral cooperation, because they not only invest in the government’s infrastructure projects, “but they also take a series of measures to increasingly become local companies with greater interaction with Brazilian companies, and generate jobs and benefits for the country,” Xia said.

In his opinion, the Belt and Road can help open up markets and promote a greater “involvement” of the private sector in participating countries.

“Heavy investment by the government is very important to laying the foundation of this initiative, which is now more mature,” he said. “The moment has come for private companies and banks to take advantage of this opportunity to do business and generate benefits.”

He said he believes that the market forces of supply and demand within the context of globalization will prompt industrial, agribusiness, manufacturing and trade centers to be built along the Belt and Road, and gradually, greater interaction between such businesses will further expand the initiative.

Through the initiative, goods and services from different regions can be traded at lower logistical costs, he said, and more jobs are meanwhile created, technology promoted, and living standards improved, especially of the people previously marginalized by globalization.

Since its launch in 2013, the China-proposed BRI has involved more than 100 countries, making it a factor in promoting mutual benefit on a global scale and an important platform for international cooperation, said the academic.

In Brazil, researchers are closely following the developments of the BRI, he said.

China has remained Brazil’s largest trading partner since it took the place of the United States in 2009. In 2018, bilateral trade hit a record 100 billion U.S. dollars, official data showed.

 

Source: XINHUA NET

Brazil central bank highlights growth slowdown, ebbing inflation risks

Brazilian economic growth has slowed more than anticipated this year and inflationary pressures have eased, minutes of the central bank’s recent policy meeting showed on Tuesday, suggesting policymakers were in no rush to raise interest rates.

While the Brazilian economy remained on a “gradual recovery path,” policymakers now view risks to inflation as “symmetric,” compared with “asymmetric” to the upside at their previous meeting.

Doubts about the success of a proposed pension reform and a precarious global outlook mean policymakers will be patient in assessing Brazil’s economy and in no rush to change policy, the minutes said.

Their decision to keep the benchmark Selic rate on hold at a record low 6.50 percent was unanimous.

The minutes of the March 19-20 meeting showed that the central bank’s rate-setting committee, known as Copom, believed inflation would peak around April or May this year before easing back to this year’s target of 3.9 percent.

Fresh data on Brazilian consumer prices on Tuesday showed a decent rise in inflation in the month to mid-March, reinforcing Copom’s view that inflation had yet to peak.

“The minutes have a dovish lean … but do not imply any rush to cut rates, instead advocating patience,” analysts at Citi wrote in a note. “Rates are seen below neutral unless the fiscal situation improves. This makes pension reform a more important driver for Brazilian rates than the minutes per se.”

Copom, under the stewardship of new central bank chief Roberto Campos Neto for the first time, also noted the outlook for global growth had deteriorated since the committee’s Feb. 5-6 meeting.

Brazilian financial markets have been highly volatile in recent days, tumbling amid concern that poor coordination in Congress would delay and dilute pension reform. The Bovespa stock index lost 5.5 percent last week, Brazil’s currency hit its weakest levels of the year, and bond yields soared.

 

Source: Reuters

Brazil overtakes China in consumer sentiment, according to Credit Suisse survey

Brazil has just overtaken China in terms of consumer sentiment, as the world’s second-largest economy slows down and spending intention on big ticket items decline, according to a Credit Suisse survey released Monday.

Speaking to CNBC at the Credit Suisse Asian Investment Conference in Hong Kong on Monday, Eugene Klerk, the bank’s managing director of global thematic research said China showed weaker readings in spending intentions compared to Brazil and India.

The Credit Suisse Emerging Consumer survey, released Monday at the conference, found that China now sits at third place in terms of overall consumer sentiment, with India and Brazil at first and second place respectively.

“If we look at the data this year, we find consumers particularly optimistic in India and we also find consumers in Brazil becoming a lot more optimistic,” Klerk said. “We see a different picture is in China.”

The survey interviewed consumers face-to-face across eight emerging economies: namely China, India, Brazil, Indonesia, Mexico, Thailand, Russiaand Turkey.

Durable goods — such as cars and luxury items — were most affected by the decline in consumer sentiment, the survey found. The bank, however, still sees “structural growth” in local goods and brands.

Klerk said he believes this decline in spending on durable goods is “cyclical” in nature.

“The theme of the emerging consumer has always been seen as a very structural one,” Klerk explained. “This year’s survey suggests that maybe the emerging consumer is slightly more cyclical than we thought he or she would be.”

The decline in spending intention across a range of luxury items, he said, suggests the narrative is “more of an economic headwinds story rather than a conscious decision to stop spending money on cars.”

China’s $13 trillion economy has been slowing, and the ongoing trade war with the U.S. has only aggravated the slowdown.

Beijing has lowered its economic growth target to between 6 percent and 6.5 percent for 2019. That’s compared to last year’s expansion of 6.6 percent, which marked the country’s slowest pace of growth since 1990.

 

Source: CNBC

Brazil markets end volatile session in the red after ex-president’s arrest

Brazilian financial markets fell in highly volatile trading on Thursday as investors feared former President Michel Temer’s arrest on graft charges could slow proposed pension reform seen as critical to injecting life into a tepid economic recovery.

Temer, who left office on Jan. 1, is accused of leading a “criminal organization” that took in 1.8 billion reais ($472 million) in a bribery and kickback scheme related to the construction of a nuclear power complex.

At one point on Thursday, the Bovespa stock market lost as much as 3.7 percent for the week, which would mark its worst week since August.

Brazil’s 10-year bond yield was up more than 20 basis points at 8.93 percent and the currency, the real, down over 1 percent at one point.

But markets clawed back some of these losses as the sharp moves prompted traders to book profits, reduce positions and assess what is next for the pension reform process.

“Investors were already primed to sell Brazil and the uncertainty fueled by (Temer’s) arrest accelerated the move,” said one trader at a Sao Paulo brokerage.

“But that gradually eased and when all is said and done, will the fiscal adjustment (from reforms) be enough? I think today’s caution was exaggerated,” he added.

The Bovespa ended 1.34 percent lower at 96,729.08 points, Brazil’s 10-year bond yield closed up four basis points 8.76 percent and the currency ended little changed at 3.79 per dollar.

Temer’s shock arrest came a day after the government unveiled a drastically watered down austerity plan for military pensions and pay, and a poll showed President Jair Bolsonaro’s popularity has plummeted.

There is no direct link between Temer and the Bolsonaro government or its economic agenda. But pension reform is not going as smoothly as the government would like, and the scandal around Temer and his former aides is seen as an unwelcome distraction.

Pension reform remains investors’ biggest worry. The 10.4 billion reais in savings from changes to military pensions and pay was well short of the 93 billion reais the government had originally trumpeted.

This raises questions about how much the government will be forced to compromise with other sectors, diluting its savings target of over 1 trillion reais in a decade and slowing its passage.

Recent surveys by Bank of America Merrill Lynch and Citi show investors growing more pessimistic on the eventual scale of savings and speed of the reform bill’s passage through Congress.

 

Source: Reuters

Brazil central bank holds rates steady despite slowdown

Brazil’s interest rates remained unchanged Wednesday after the central bank held its first monetary policy meeting under its new chief Roberto Campos Neto.

The central bank’s unanimous decision — only the second since pro-business President Jair Bolsonaro took power in January on a promise to revive Latin America’s biggest economy — to keep rates at 6.5 percent was in line with market expectations.

Rates have been at the historic low for a year and the bank gave no indication of plans to cut them any time soon despite slowing growth.

The decision disappointed the powerful National Confederation of Industries, which issued a statement saying “the weak performance of economic activity shows that Brazil must reduce rates.”

Brazil’s economy is still bearing the scars of the record recession in 2015-2016, with growth barely above one percent in the past two years.

Recent economic indicators, though, show signs of a contraction in 2019.

 

Source: France 24

After Bolsonaro’s Flattery And Concessions, Trump Announces Support To Brazil Joining OECD

Jair Bolsonaro ended his meeting with US president Donald Trump on Tuesday (19th) in Washington with a win: the United States’ support for Brazil’s candidacy to become a member of OECD (Organisation for Economic Co-operation and Development), the “rich countries club.”

It was the primary goal of Bolsonaro’s first visit to the United States as president. The Brazilian government sees the OECD membership as a sort of “seal of approval” of its macroeconomic policies.

However, the support didn’t come for free. In exchange, Brazil will give up its special treatment status at the World Trade Organization, WTO, which allows the country to have better terms in trade deals and other privileges.

The trip also cemented Trump and Bolsonaro’s relationship and ideology affinities.

During the press conference at the White House Rose Garden, they exchanged compliments and jokes, showing their chemistry as right-wing populists.

“I have always been a great admirer of the US, and my admiration only grew strong with you as a president,” Bolsonaro said to Trump. “Brazil and the United States are united in the safeguard of freedom, fear of God, and against gender ideology, political correctness, and fake news.”

Trump also didn’t spare praises for the Brazilian leader. “You did an incredible job uniting the country. I’m very proud to hear the president use the expression ‘fake news.'”

The United States is waging war to reform the WTO. One of the main goals is to end the possibility of member countries to define themselves as developing, a label that would warrant them special treatment.

 

Source: Folha

São Paulo Stock Exchange Operates Detached From Brazil’s Economic Reality

The Brazilian stock market seems to be purposefully ignoring the country’s economic reality.

On the same day that one more important economic indicator frustrates expectations, the São Paulo Stock Exchange (Bovespa) hits another nominal record, closing near 100,000 points.

On Monday (18th), the IBC-Br, the Central Bank activity indicator – considered a preview of Gross Domestic Product (GDP) growth – fell 0.41% in January, in comparison to December.

The number is well under the market’s expectations.

At Bovespa, however, the frustration didn’t make a blip. It reached 100,000 during the trading day and closed a little below the all-time high of 99,993 points. The day closed 0.86% higher than the day before.

Also on Monday, economists adjusted their expectations for the 2019 GDP. They now expect a 2% growth, whereas one week ago the predictions were of 2.28%. Back in June 2018, the projected growth was 3%.

On Friday (15th), Bovespa reached 99.136 points, after a weeklong of disappointing indicators in all industries: manufacturing, retail, and services.

“It’s hard to say that the Stock Exchange is going up because president Bolsonaro said this or that. I still think that the main reason is the global markets’ good mood,” said Santander’s financial strategist Ricardo Peretti.

Peretti says that São Paulo is merely following the other stock markets in the US and Europe that started March on a downward trend, and then recovered the following week, and have also been reaching peak indexes.

 

Source: Folha

Newsletter – February/March