Carlyle’s Rubenstein: Brazil best, despite problems

Lawrence Delevigne – CNBC, 5/12/2015

Once an investor darling, Brazil is hardly a consensus target for international cash today.

High inflation, a sluggish economy and a massive corruption scandal at state energy company Petrobras have caused many investors to flee. But others are sticking with the beleaguered South American country.

One example is $193 billion private equity giant Carlyle Group. Co-CEO David Rubenstein thinks Brazil is actually the most appealing market for investment after the U.S., Europe and China, according to remarks made Tuesday at the Global Private Equity Conference in Washington, D.C.

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Carlyle’s Rubenstein: Brazil best, despite problems

Brazil’s economy: A tight squeeze

The Economist, 4/30/2015

DO NOT envy Brazil’s monetary policymakers. The economy is faltering. With business confidence plumbing record depths, unemployment up and real wages down—by 3% year-on-year in March, the most in more than a decade—demand remains fragile. Supermarket sales fell by 2.6% last month, compared with the previous one. Output will probably contract by at least 1% this year. Yet with prices rising at the fastest rate since 2003, the central bank’s rate-setters had little choice when they met on April 29th but to raise interest rates by another half a percentage point, to 13.25%.

If Brazil is fortunate, the painful rate hike could leave policy-makers with a bit more room to manoeuvre when they next convene in June. One source of inflationary pressure is easing: the real has rebounded by more than 10% against the dollar since its 12-year trough six weeks ago. This, notes Alberto Ramos of Goldman Sachs, an investment bank, mainly reflects the prospect that the Federal Reserve will keep its own rates rock-bottom for a while longer, given the recent underwhelming performance of the American economy. But it also illustrates the markets’ belief that the wily finance minister, Joaquim Levy, will manage to keep his pledge and turn a primary budget deficit (excluding interest payments)‎ of 0.6% in 2014 into a surplus of 1.2% this year.

This faith was shaken on April 30th, when official figures showed that in March the government managed to set aside a piffling 239m reais ($79m) to pay creditors; analysts had been expecting something closer to 5 billion reais. Meanwhile, the total public-sector deficit ballooned to 7.8% of GDP, inflated by a 34.5 billion reais monthly loss stemming from the central bank’s currency-swap programme. The economic slowdown also appears to be hurting the government’s tax take.

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Brazil’s economy: A tight squeeze

Brazil Rate Hikes Actually A Good Thing

Kenneth Rapoza – Forbes, 4/29/2015

Brazil’s central bank hiked interest rates by 50 basis points on Wednesday as expected. One would think that making credit more costly when the economy is in the gutter is anti-growth. It is. But not in Brazil. That is because inflation of 8.2% is hurting growth just as much, if not more, as high rates. High rates Brazil can live with. Unpredictable inflation? No thank you. So when Brazil’s central bank raised interest rates to 13.25% after market hours today, Brazil investors understand that as bank governor Alexandre Tombini doing what needs to be done: attacking nasty and unrelenting inflation.

Nomura Securities said after the news that the Central Bank of Brazil will likely raise rates by an additional 25 basis points in June. The risk is tilted toward more hiking, too, regardless of a strengthening real and a weaker labor market.

In fact, an additional 50 bips hike is not out of the question, says Nomura’s João Pedro Ribeiro.

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Brazil Rate Hikes Actually A Good Thing

Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Filipe Pacheco and Paula Sambo – Bloomberg Business, 4/27/2015

Brazil’s real rose for a fifth straight day amid speculation the central bank will raise borrowing costs by another half-percentage point this week, making local assets more attractive to international investors.

The real gained 1.2 percent to 2.9170 per dollar at the end of trade in Sao Paulo, an eight-week high. The rally that began April 20 is the longest since June 2014.

Buying the real with borrowed dollars has returned 11 percent this month, the most among the 31 major currencies tracked by Bloomberg after the ruble. The real climbed Monday as analysts forecast that Brazil will lift the target lending rate on April 29 by 50 basis points for a fourth straight meeting to curb above-target inflation. The Federal Reserve, meanwhile, is expected to hold borrowing costs steady that day as U.S. economic growth shows signs of slowing.

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Brazil’s Real Climbs as Higher Rates Seen Attracting Investors

Brazil’s biggest problem isn’t Petrobras

Matt Phillips – Quartz, 4/28/2015

It’s not the scandal, stupid.

Last week the Brazilian oil giant Petrobras wrote down the value of its assets by some $17 billion, including $2.1 billion reflecting the impact of bribes and graft. The scandal—in which company executives allegedly received kickbacks in exchange for awarding contracts at inflated values—has prompted worries that it could creep closer to President Dilma Rousseff, who served as the chairwoman of Petrobras, during the years when much of the alleged bribery took place. So far, she hasn’t been implicated.

But as the nation’s attention continues to be riveted by the scandal, Brazil’s economy is decelerating rapidly. Numbers out this morning show that unemployment rose to 6.2% in March, up from 5.9% in February and the highest since March 2012.

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Brazil’s biggest problem isn’t Petrobras

Brazil Interest Rates Going Higher This Week

Kenneth Rapoza – Forbes, 4/27/2015

Brazil’s central bank will most likely hike interest rates by 50 basis points this week. Despite a lackluster economy, runaway inflation is key to the bank’s decision. Current year over year inflation in Brazil is 8.13%. The bank’s target is more like 5.5%. Enough is enough.

There are four main variables influencing the monetary policy committee’s decision this week, notes João Pedro Ribeiro, a fixed income analyst with Nomura Securities in New York. Ribeiro lists recent currency strength as one factor that could sway committee members to be a bit less hawkish. The real is now breaking through the 3 range and trading at R$2.90. Not too long ago, Nomura polled clients who all said the real was closer to R$4 than to R$3. Another factor to look out for is the ongoing changes to the government’s fiscal deficits.

But out of all of these variables, nothing is more hawkish than inflation.

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Brazil Interest Rates Going Higher This Week

Investors tiptoe back into Brazil markets as inflation peaks

Walter Brandimarte – Reuters, 4/17/2015

Some investors are carefully betting that the recent selloff in Brazilian financial markets was overdone, pointing to signs that inflation is slowing and the government is getting its finances in order.

Many expect inflation will come down from its current 11-year high of 8.13 percent, thanks to the central bank’s interest rate hike cycle of 1.75 percentage points since October, as well as the economic slump’s effect on demand.

Meanwhile, state-run oil company Petrobras is expected to this month post financial statements that have been delayed by a huge corruption scandal, greatly reducing the risk of a major debt crisis that could have cost Brazil its investment grade credit rating.

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Investors tiptoe back into Brazil markets as inflation peaks