Brazil markets rise as poll shows election headed to 2nd round

August 18, 2014

Walter Brandimarte – Reuters, 8/18/2014

Brazil’s financial markets closed higher on Monday as an opinion poll showed President Dilma Rousseff, criticized by investors for interventionist policies, is unlikely to win an outright re-election on Oct. 5.

The poll increased uncertainty about who is likely to face Rousseff in a second-round runoff – market favorite Aecio Neves or environmentalist Marina Silva.

Silva was statistically tied with Neves in a Datafolha poll, the first conducted after her running mate Eduardo Campos died in a plane crash last week. Silva’s presidential bid is expected to be formally announced by the Brazilian Socialist Party on Wednesday.

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Marina Silva injects charisma into Brazil’s presidential campaign

August 18, 2014

Samantha Pearson – Financial Times, 8/18/2014

Marina Silva has made a habit of escaping death. Growing up in a poor family of rubber tappers in the Amazon jungle, she survived bouts of malaria and hepatitis. Polluted water also left her with metal poisoning. As a campaigner against deforestation she later faced death threats from ranchers, who in 1988 murdered Chico Mendes, her close friend and Brazil’s celebrated environmentalist.

On Wednesday last week she cheated death again. She was meant to be on the private jet that crashed near São Paulo in bad weather, killing Eduardo Campos, the presidential candidate, but she changed her plans at the last minute.

The harrowing experiences have turned the 56-year-old into a frail, slightly hunched woman, often seen with dark circles under her eyes. But her battles with death as well as poverty and illiteracy have also strengthened her iron-like resolve, transforming her into a likely leader of the world’s second-largest emerging market.

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Brazil Equities Due For Correction

August 18, 2014

Kenneth Rapoza – Forbes, 8/15/2014

Investors may be cheering the likelihood of Brazil’s incumbent Dilma Rousseff being kicked to the curb in the October presidential election, but that will not be enough to push the iShares MSCI Brazil (EWZ) exchange traded fund over $50. That’s because the fundamentals of this economy are not sound.

Brazil may have been a technical trade for a while. Or even a FIFA World Cup trade. But the Dilma trade can’t last for long. Brazil will start getting expensive. And fundamentals will return to the fore. This economy has seen its better days.

The June IBC-Br — a monthly Central Bank proxy for quarterly GDP — came in at a -1.5% month over month, ending the second quarter on a bad note. As a reminder, industrial production during that month decreased 1.4%  and broad retail sales dropped 3.6%.

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Brazil’s Swap Rates Decline After Economy Contracted in June

August 15, 2014

Filipe Pacheco – Bloomberg, 8/15/2014

Brazil’s swap rates fell after data showed the economy shrank in June by the most in 13 months, adding to speculation policy makers will limit further increases in borrowing costs.

Swap rates on contracts maturing in January 2017, a gauge of expectations for interest rates, dropped six basis points, or 0.06 percentage point, to 11.54 percent at 9:20 a.m. in Sao Paulo, and were down 12 basis points this week. The real climbed 0.2 percent to 2.2622 per dollar, extending the advance this week to 0.9 percent.

Brazil’s seasonally-adjusted economic activity index fell 1.48 percent in June from the previous month, the central bank said in a report posted on its website today, the biggest drop since May 2013. President Dilma Rousseff is struggling to revive Brazil’s faltering economy, which is forecast by analysts to grow at the slowest pace since 2009, two months ahead of presidential elections.

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Brazil Markets Whipsawed After Candidate’s Plane Crash

August 13, 2014

Filipe Pacheco, Julia Leite and Ney Hayashi – Bloomberg Businessweek, 8/13/2014

Brazilian stocks and the real whipsawed higher and lower after a plane used by opposition presidential candidate Eduardo Campos crashed in Sao Paulo state.

Campos’s campaign confirmed it couldn’t reach him after a small plane went down in the port city of Santos, while Globo News and Folha de S. Paulo reported that the candidate had died. Campos, who was polling in third place ahead of the October elections, was flying to an event in the city of Guaruja at the time, according to O Estado de S. Paulo newspaper.

Stocks and the real plunged initially before paring losses as investors sought to quickly analyze the impact the crash would have on Brazil’s presidential vote. The stock gauge had rallied 26 percent from this year’s low March 14 on speculation that President Dilma Rousseff would be defeated and the new government would reduce intervention in state-owned companies.

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Ibovespa Falls With Petrobras as Recent Gains Deemed Excessive

August 12, 2014

Denyse Godoy – Bloomberg Businessweek, 8/12/2014

The Ibovespa fell, led by oil producer Petroleo Brasileiro SA, amid speculation that recent gains were excessive considering prospects for Brazil’s economy.

Banco Bradesco SA led financial stocks lower. Insurance group BB Seguridade Participacoes SA rallied after reporting profit that beat analysts’ estimates.

The Ibovespa fell 0.3 percent to 56,458.10 at 11:22 a.m. in Sao Paulo. Brazil’s benchmark index has rallied 26 percent from this year’s low on March 14 as Petrobras jumped on speculation that a new government will reduce intervention in state-controlled companies.

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BRICS are drifting away from US and European monetary structures

August 12, 2014

Mike Kane – Market Realist, 8/12/2014

The BRICS countries (Brazil (EWZ), Russia, India (EPI), China (FXI), and South Africa) are slowly but surely drifting away from the 20th Century monetary and political structures setup by the U.S. (SPY) and Europe (EZU), as characterized by Russia’s G8 membership being revoked in the wake of the events in Crimea. The G7, as it is now known, is at odds with Russia’s Vladimir Putin, but that rift applies to the entire BRICS coalition — a group that seems to be growing stronger and more focused as leader of the Emerging Markets.

There have been a slew of recent moves within the BRICS network. Russia and China inked a $400 billion, 30-year natural gas partnership, forged a bilateral inter-bank agreement to deal in local currencies, and announced plans to create a new credit rating system to counter the Western agencies. China is diversifying away its U.S. dollar exposure, China and Brazil finalized a local currency swap, and leaders from the group of nations just met for the sixth annual BRICS Summit in Brazil.

According to a government report released in June, China’s (FXI) holdings of U.S. Treasuries (TLT) declined for the third straight month in June 2014. China held 1.26 trillion in U.S. debt as of April 30, 2014, according to the report. This is an $8.9 billion decline from March. This fact is particularly significant given that China (FXI) is the largest foreign holder of U.S. Treasuries (IEF). According to data compiled by Bloomberg, analysts have seen this decline in holdings for three consecutive months.

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Brazil’s Neves vows to reduce inflation to target center

August 12, 2014

Reuters, 8/12/2014

Brazilian opposition candidate Aecio Neves said on Monday that if elected president he would adopt policies aimed at bringing the inflation rate back to the center of an official target range of 4.5 percent by the end of the four-year presidency.

President Dilma Rousseff’s management of the economy has come under heavy criticism ahead of the election on Oct. 5, but while leading opinion polls show Neves narrowing the gap they still point toward a victory for the incumbent.

Neves said in an interview with GloboNews TV that he would do what is necessary to keep prices in check. The centrist senator also said that he would also seek to lower the target range for inflation.

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Exclusive: Brazil may raise fuel prices by up to 6 percent

August 12, 2014

Luciana Otoni – Reuters, 8/11/2014

The Brazilian government could increase domestic fuel prices at refineries by up to 6 percent after the October presidential election, a senior government source told Reuters on Monday.

The official, who asked not to be named because of the sensitivity of the issue, said an increase of between 5.5 percent and 6 percent is a preliminary calculation and aims to help state-run oil company Petroleo Brasileiro (PETR4.SA), known as Petrobras.

President Dilma Rousseff, who is running for re-election on Oct. 5, has kept fuel prices below international levels to curb above-target inflation. That policy has hurt the finances of Petrobras, which is forced to buy fuel at international prices and sell it more cheaply in the local market.

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Brazil Ex-Insider Returns to Help Oust President

August 11, 2014

Luciana Magalhaes – The Wall Street Journal, 8/8/2014

With slow growth and high inflation hurting Brazilian President Dilma Rousseff’s chances of winning a second term, a financial heavyweight has joined the opposition to persuade voters that Brazil needs a new economic steward.

Arminio Fraga, a former central banker, has been advising Aecio Neves of the Brazilian Social Democracy Party for several months. He’s now talking openly of returning to government, perhaps as finance minister, if Mr. Neves can pull of an upset in October’s presidential elections.

“I wouldn’t make myself available if I didn’t feel deeply bothered, and I am,” Mr. Fraga, 57, said last week in an interview in his office in Rio de Janeiro.

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