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Brazil Posts Largest Budget Deficit Ever As Rousseff Cries “Coup,” Olympic Ad Sales Top $1 Billion

Brazil Posts Largest Budget Deficit Ever As Rousseff Cries “Coup,” Olympic Ad Sales Top $1 Billion

On Tuesday, embattled Brazilian President Dilma Rousseff was dealt a bitter blow when PMDB – the party of VP Michel Temer and House Speaker Eduardo Cunha – officially left the coalition government.

“Dialogue, I regret to say, has been exhausted,” Tourism Minister Henrique Eduardo Alves, a PMDB leader and former speaker of the lower house of Congress, said on Monday as he resigned from Rousseff’s cabinet.

To let the market tell it, a complete political meltdown is great news. As we showed yesterday and as we’ve discussed on a number of occasions this month, the more precarious things get politically in Brazil, the harder the BRL and Brazilian risk assets rally. Why? Because the assumption is that when it comes to the country’s floundering economy, anything is preferable to the current arrangement. With output in free fall, inflation running in the double digits, and unemployment marking an inexorable rise, it’s difficult to imagine how things could possible get any worse.

Indeed, the prospect that Rousseff and Lula will be sent packing has created so much upward pressure on the BRL that the central bank has begun selling reverse swaps to keep a lid on the currency lest its rapid appreciation should end up short circuiting a much needed economic adjustment.

Meanwhile, Brazilian stocks have soared this year amid the turmoil. Of course this state of affairs simply isn’t sustainable. As Craig Botham, an emerging markets economist at Schroder Investment Management put it, “you don’t invest in a place where you don’t know who’s in charge.

Right. And you also don’t invest in a place where the economic fundamentals get worse by the day.

…click on the above link to read the rest of the article…

Hundreds Of Thousands Stage Massive Street Protests In Brazil, In Loud Call For Rousseff’s Ouster

Hundreds Of Thousands Stage Massive Street Protests In Brazil, In Loud Call For Rousseff’s Ouster

Back in August, we said that while there are all kinds of charts one could look at on the way to judging just how bad things have truly gotten in Brazil, the most important graphic of all may indeed be this one, which depicts the scope of the various street protests that took place in the country last year.

Popular discontent with President Dilma Rousseff has waxed and waned over the last six months along with the prospects for the opposition’s impeachment bid. At times, it looked like Rousseff might be on her way out, but political wrangling and questions about whether House Speaker Eduardo Cunha – the lawmaker pushing hardest for the President’s ouster-  accepted bribes complicated the process.

As Bloomberg wrote earlier this week, a string of recent events tied to the seemingly never-ending Carwash Probe – the 2-year long investigation into corruption involving Petrobras – have brought prosecutors ever closer to Rousseff. That, combined with the fact that the country is mired in a deep economic downturn characterized by double-digit inflation and soaring unemployment has the public at wit’s end.

“On Feb. 22, Rousseff’s top campaign strategist, João Santana, was arrested for allegedly receiving $7.5 million, [then] the magazine IstoE reported that the government’s former leader in the senate, Delcídio do Amaral, had alleged that Rousseff had pushed judges to release political allies imprisoned on charges of graft,” Bloomberg recounted. Finally, former President Luiz Inácio Lula da Silva was held for questioning and five days later, he was charged with money laundering.

The BRL soared on the news as the market apparently believed the chances that Rousseff would be impeached were meaningfully higher after Lula’s detention.

…click on the above link to read the rest of the article…

Brazilian Real Crashes Most In 4 Years As Hope Fades

Brazilian Real Crashes Most In 4 Years As Hope Fades

Following recent strength on the heels of hope for a new finance minister, news that Ruosseff has sent the minimum-wage-hike Bill to Congress appears to have crushed the hype of any fiscal rectitude and sent Real tumbling. Down over 4% – the most since September 2011 – BRL is back above 4.00 per USD, giving up all the recent gains.

Broad weakness in EMFX…

Seems to have been exacerbated by:

  • *BRAZIL ROUSSEFF SENDS BILLS ON CIVIL SERVANT WAGES TO CONGRESS

A Bill that could cost BRL 4.77 billion, wrecking hopes of any improvment in the fiscal situation. As Bloomberg reports,

Brazil’s bigger-than-estimated minimum wage increase and potential credit expansion make it harder for govt to control around 11% on year inflation and cut budget gap, Marcelo Schmitt, portfolio manager at investment firm Sul America, says in a phone interview.

These initial policy steps after Barbosa replacing Levy as finance minister are concerning, says Schmitt.

And so…

This is the biggest drop in BRL since September 2011.

Charts: Bloomberg

A Hapless Brazil Incurs Massive Losses On FX Swaps Amid Currency Carnage

A Hapless Brazil Incurs Massive Losses On FX Swaps Amid Currency Carnage

As we’ve documented extensively of late, a host of idiosyncratic political factors have served to exacerbate what was already a very, very bad situation for emerging markets.

This dynamic is most readily apparent in Brazil and Turkey, and although Ankara probably has a leg up in the race for “most at risk from domestic turmoil”, Brazil isn’t far behind as President Dilma Rousseff battles abysmal approval ratings and a recalcitrant Congress in an effort to shore up the country’s finances by convincing lawmakers to sign off on much needed austerity measures.

Meanwhile, a confluence of exogenous shocks that include slumping commodity prices, depressed Chinese demand, the PBoC yuan devaluation, and the threat of an imminent Fed hike have conspired with country-specific political turmoil to send the BRL plunging and that, in turn, has put Copom in what former Treasury secretary Carlos Kawall calls “crisis mode.”

Of course crises are often costly to combat, especially when you’re an emerging market in the current environment and when it comes to Brazil, the use of alternative measures (like effectively selling dollars in the futures market) to avoid FX reserve liquidation is now weighing heavily on the fiscal outlook. As Goldman noted earlier this week on the heels of the latest monthly budget data, “the overall fiscal deficit is tracking at a disquieting 9.2% of GDP, driven in part by the surging net interest bill, which was exacerbated by the large losses on the central bank stock of Dollar-swaps.” Here’s what Capital Economics had to say after an emergency swaps auction was called by Copom in a desperate attempt to shore up the BRL last week:

…click on the above link to read the rest of the article…

Brazilian Nightmare Worsens On Bad Budget Data, Record Low Confidence, Horrific Government Approval Ratings

Brazilian Nightmare Worsens On Bad Budget Data, Record Low Confidence, Horrific Government Approval Ratings

Last month, in “‘No Recovery For You!’ Brazil Officially Enters Recession, Goldman Calls Numbers ‘Disquieting’”, we outlined Brazil’s July fiscal performance and came away believing that the country had little chance of hitting its primary fiscal surplus targets. Here’s what we said:

The latest on the political front is that President Dilma Rousseff has 15 days to explain to the the Federal Accounts Court why everyone seems to think that she intentionally delayed nearly $12 billion in social payments last year in an effort to make the books look better than they actually were. And while we won’t endeavor to weigh in one way or another on that issue, what we would say is that if someone in Brazil is doctoring this year’s books, they aren’t doing a very good job because things just seem to keep going from bad to worse. Case in point, on Friday, Brazil said its primary budget deficit was R10 billion in July, far wider than expected. The takeaway: “no primary surplus for you!”

Just three days later, Brazil officially threw in the towel on the primarily surplus projection for 2016 only to reverse course a few weeks later when embattled Finance Minister Joaquim Levy promised to enact some BRL26 billion in primary spending cuts for the 2016 budget on the way to achieving in a primary surplus that amounts to 0.7% of GDP.

Of course implementing austerity in the current fractious political environment is going to be well nigh impossible which means any and all upbeat assessments of the outlook for the country’s fiscal situation should be looked upon with an appropriate degree of skepticism. Add in the abysmal outlook for commodities and you have a recipe for perpetual twin deficits on the current and fiscal accounts, a situation which portends more BRL weakness to come. 

…click on the above link to read the rest of the article…

Brazil’s Economy Is On The Verge Of Total Collapse

Brazil’s Economy Is On The Verge Of Total Collapse

Back when the BRICs were the source of marginal global growth, the punditry couldn’t stop praising them. However, in the past year, now that China’s housing bubble has burst and its shadow banking system has imploded, those who remember what BRIC actually stood for are about as rare as those who recall what it means for the Fed to hike rates. Which is precisely why nobody in the mainstream financial media has commented on the absolutely abysmal economic update reported earlier today out Brazil.

We are happy to do so because today’s data follows up quite well to our article from a month ago “Brazil’s Economy Just Imploded” and as the earlier article on the crashing Brazilian Real hinted, things for the Brazilian economy how gone from imploding to, well, worse because not only did the twin fiscal and current account deficits rise even more, hitting a whopping 11% of GDP – the worst since August 1999, but its government debt soared to 63.4% in 2014, up from 56.7% a year ago, and the highest since at least 2006. In short – the entire economy is now on the verge of total collapse.

This is what happened in a few bullet points:

  • The fiscal picture has deteriorated very sharply since 2011 at both the flow (fiscal deficit) and stock (gross public debt) levels. The primary and overall nominal fiscal surpluses at year-end 2014 were at levels last seen in the late 1990s.
  • The steady decline of the public sector savings rate is leading to a wider current account deficit despite weaker growth and low investment. In fact, the twin fiscal and current account deficits are now tracking at a combined, very troublesome 10.9% of GDP, the worst picture in 15 years (since August 1999). Repairing the severely unbalanced macro picture would require a deep, structural and permanent fiscal and quasi-fiscal adjustment and a significantly weaker BRL.
  • The new economic team faces, among other things, the very significant challenge of repairing the severely deteriorated fiscal picture.
  • The steady erosion of the fiscal stance pushed net and gross public debt up. Furthermore, fiscal and quasi-fiscal activism undermined the effectiveness of monetary policy, contributed to keep inflation very high and drove the current account deficit to a very high level despite weak growth.

…click on the above link to read the rest of the article…

 

 

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