Dev Ashish of Societe Generale notes that Brazilian assets are being impacted by mounting electoral and budgetary worries. With Bovespa breaking below its long-term average and USD/BRL approaching its 200-day moving average at 5.2042, BRL has underperformed in Latin America. A fourth term for Lula with a divided Congress is considered the base case, but a prolonged surge above the 200-day mark would aim for 5.34–5.38.
The currency picture is clouded by political risk.
"Election uncertainties weigh on Brazilian assets: With a negative total return of 1.7% compared to profits of about 2% for the CLP and MXN, the BRL is the leading laggard in Latin America this month."
"Our economist Dev Ashish assigns a 65% likelihood to a base-case scenario in which President Lula achieves a fourth term with a divided Congress, a combination that might weigh further on the real."
"The Bovespa has already broken the long-term average after falling to a seven-month low of 167k, while the USD/BRL is getting close to the 200dma at 5.2042."
"Technically speaking, a persistent breach above the 200dma would open 5.34-5.38 in USD/BRL."
"With certain fund allocations potentially moving toward the MXN as a somewhat more attractive carry/politically neutral destination, this is indication that investors are increasingly repricing election and budgetary concerns ahead of the presidential elections."
The currency picture is clouded by political risk.
"Election uncertainties weigh on Brazilian assets: With a negative total return of 1.7% compared to profits of about 2% for the CLP and MXN, the BRL is the leading laggard in Latin America this month."
"Our economist Dev Ashish assigns a 65% likelihood to a base-case scenario in which President Lula achieves a fourth term with a divided Congress, a combination that might weigh further on the real."
"The Bovespa has already broken the long-term average after falling to a seven-month low of 167k, while the USD/BRL is getting close to the 200dma at 5.2042."
"Technically speaking, a persistent breach above the 200dma would open 5.34-5.38 in USD/BRL."
"With certain fund allocations potentially moving toward the MXN as a somewhat more attractive carry/politically neutral destination, this is indication that investors are increasingly repricing election and budgetary concerns ahead of the presidential elections."
