Real takes a reality check as Brazil strains to support its currency

Katie Martin – Financial Times, 10/4/2015

Brazil’s currency, the real, is tormenting many fund managers.  Few thought it would see out the year unscathed. The country’s high interest rates were never likely to be enough entirely to shield the currency from trading weakness at a time when the economy was shrinking and the US is on the cusp of raising interest rates.

But the real has contrived to stand out particularly among a field of emerging markets currencies almost all of which have suffered bruising declines.

The pace and scale of the fall in the Brazilian currency, once a popular pick as one of emerging markets’ juiciest bets, have stumped even the most seasoned observer and left some investors peeking at their screens through their fingers. “Mayhem” is how Rabobank described it; the source of “one of the wildest days we’ve ever seen in Latin American markets”.

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Brazil’s Rousseff cuts eight ministries in cabinet shuffle

Paulo Trevisani – The Wall Street Journal, 10/2/2015

Brazil’s President Dilma Rousseff shook up her cabinet Friday in a bid to save her job and break a political logjam that is paralyzing Latin America’s largest economy.

The changes give more clout to Brazil’s largest political party, the PMDB. Its leaders are seen as key to blocking a possible impeachment process against Ms. Rousseff and helping her pass much-needed fiscal reforms.

The revamp comes as the deeply unpopular president and her ruling Workers’ Party or PT struggle to cling to power less than a year after Ms. Rousseff won a second four-year term in the October 2014 elections.

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Brazil braces for more pain

John Lyons and Rogerio Jelmayer – The Wall Street Journal, 9/24/2015

Brazil’s battered currency on Thursday touched a new low, unemployment surged and the central bank forecast a far deeper recession—a litany of woes suggesting a major crisis ahead for this once high-flying economy with a long history of booms and busts.

The real, already the worst performer of any major global currency so far this year, hit a new intraday low of 4.24 reais per dollar, prompting Alexandre Tombini, the head of the central bank, to make a surprise announcement that Brazil could dip into its $371 billion in reserves to stem the currency’s bleeding.

Despite the slight rebound to 4.04 per dollar prompted by the remarks, the real has lost around 35% of its value this year, edging out Kazakhstan’s tenge as the biggest loser so far this year.

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Global food price fall: can Brazil benefit?

Savita Iyer-Ahrestani – ThinkAdvisor, 9/21/2015

Those investors keeping close tabs on global weather patterns know that a stronger than usual El Nino is developing. Experts say it’s the strongest in 20 years, and expect it to peak in November and continue into 2016, dumping, among others, colossal amounts of rain on the main corn and soybean producing areas of North and South America, notably Brazil—a country that for multiple reasons, is probably the least favorite emerging market, but could, some say, stand to benefit from the El Nino effect.

Recently, Standard & Poor’s downgraded Brazil’s credit rating to junk status. The Brazilian real has suffered a massive El nidepreciation and the dramatic fall in commodity prices has impacted Brazil, a major exporter, in a bad way. The Brazilian economy is battling inflation and political tension in the country is rife.

But Brazil accounts for much of global food production and is slated to produce 40% between 2015 and 2020, said Michael Underhill, co-founder of agribusiness investment firm Capital Innovations. As such, increased precipitation as a result of the El Nino effect and subsequent increased production could provide a “tailwind” to the economy.

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Brazil raises taxes on financial firms

Rogerio Jelmayer – The Wall Street Journal, 9/16/2015

Brazil’s Senate approved a tax increase on financial firms’ profits, part of a government effort to boost the country’s revenue and cut its budget deficit amid weak economic growth.

The Senate step follows the approval by the lower house earlier this month, and now must be signed by President Dilma Rousseff before it can be implemented. The so called CSLL tax will rise to 20% from 15%, with the increase expected to take effect Oct. 1.

The increase, which will affect banks, brokerages and other financial institutions, is likely to generate extra revenue for the government worth 900 million Brazilian reais ($233 million) this year; BRL3 billion in the next year; and BRL4 billion in 2017, as the increase will be implemented gradually.

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Brazil economy plunges in second quarter

Paul Kiernan – The Wall Street Journal, 8/28/2015

Brazil has entered its deepest economic downturn since the global financial meltdown of 2008-09, official data confirmed Friday.

But unlike the previous crisis, economists say the current problems were caused by errant economic policy at home and that the road to recovery will be a long one.

Brazil’s gross domestic product shrank 1.9% between April and June from the previous three months in seasonally adjusted terms, the Brazilian Institute of Geography and Statistics said on Friday. It was the second consecutive quarter of decline after the economy shrank a revised 0.7% in January-March, meeting the criteria for what most economists consider a recession.

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Brazil’s economy is being blasted back in time

Linette Lopez – Business Insider, 8/5/2015

Economic indicators are flashing danger in Brazil. Activity in the country’s service sector is at its lowest level since the depths of the financial crisis, according to data from Markit Economics.

Meanwhile, economic activity is falling at almost 5% a year, according to research firm Reorient.

Couple that with a scandal-ridden president with a 7% approval rating and a major commodities slump, and what you’ve got are the ingredients for economic disaster.

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