Brazil: Eyeing activity reports – Rabobank

Rabobank analysts point out that in recent weeks, Brazilian assets have outperformed, benefitting from a respite in the sell-off of EM assets, but with the exception of the nominal yield curve, the ending week saw sort of a pause in this rally.

Key Quotes

“Sovereign CDS (5-year) moved sideways and continue trading at the investment grade levels seen in the beginning of the decade (around 100bp). The BRL had a mid-tier performance after weeks of strong appreciation and lost c. 0.3%. Accordingly, the benchmark index for the equity market paid back part of the gains from December and lost c. -1%. On the other hand, fixed income saw yields falling, especially on the belly of the nominal curve.”

“During the week we saw the IPCA gaining 1.15% m/m in December, closing the year at 4.3%, slightly above the BCB’s 2019 mid-target (4.25%). The result came in above consensus (1.08%) and our own forecast (1.10%).”

“On the activity front, industrial production (IP) posted the first negative surprise of 19Q4. The sector contracted by 1.2% m/m (-1.7% y/y) in November, coming in below market expectations (-0.7% m/m; -0.8% y/y). The result was driven by both the manufacturing (-1.3% m/m) and the mining (-1.1%) sector, which registered the third negative reading in a row.”

“Economic activity takes centre stage for the coming week, with the docket bringing November reports on services sector (Tue.), retail sales (Wed.) and the broad economy (Thu.). We expect this week’s numbers to reaffirm our expectation of a stronger GDP growth in 19Q4, following a solid Q3.”