USDBRL went from 2.25 to 2.87 (approx +27% in 6 months) as of today since my last post - I continue to believe that this is only the beginning of this uptrend as macro data continue to deteriorate at a rapid pace - and in all fronts! So far no counter cyclical measure from the Gov - and we should not except any I guess...
The theme is starting to get audience as the uptrend in the USDBRL price is clearer, macro data are getting quite ugly and election are done - this should help the trend to accelerate in the near future.
GS started to become bearish on the USDBRL in Q4 2015 - Below a macro update from GS:
Business Confidence Business confidence in the industrial sector declined a sizeable 3.1% mom sa in February, more than fully erasing the 1.9% mom sa increase recorded in January. Business confidence in the industrial sector is currently 22% below the January 2013 peak.
The index measuring current conditions declined 1.7% mom sa in February and the index measuring expectations fell a large 4.8% mom sa. The rate of capacity utilization remained unchanged at 82.0, i.e., below the 84.6% print from a year ago.
Weak confidence in the industrial sector attests to the very challenging near term operating environment. Industrial production has now declined for six consecutive quarters and it is should retrench further in 2015 as it continues to face strong headwinds from a still overvalued BRL, high levels of inventories, depressed confidence, high unit labor costs, poor infrastructure, rising energy costs, a high (and rising) tax burden and weak external demand (particularly from Argentina for durable goods).
Furthermore, financing conditions are expected to tighten in 2015 as lending rates go up and access to credit becomes more selective (from both private and public banks). Finally, investment spending is likely to contract again in 2015 given the poor outlook for final demand growth, higher financing costs, growing risk of energy/water supply limitations, and likely significant cuts in capex by Petrobras owing to the legal and corporate governance issues.
According to the Central Bank’s weekly survey of market analysts, inflation expectations for year-end 2015 worsened, reaching a high 7.33% (+6bp from a week ago and +34bp from a month ago), and for year-end 2016 remained unchanged at an above-target 5.60%. That is, expectations for 2015 IPCA headline inflation continue to deteriorate, moving further away from the generous 6.50% upper limit of the inflation target band.
Inflation in February is expected to have been under upward pressure from higher fuel prices and school tuition fees and the residual impact from higher electricity tariffs and urban bus fares. This should be partially offset by the slight moderation of food inflation and the seasonal decline in airfares and clothing prices.
Overall, the current account posted a very large US$90.9bn deficit in 2014 (4.17% GDP; the largest current account deficit in 13 years), well above the US$81.1bn deficit (3.62% of GDP) recorded in 2013 despite a stagnant economy. FDI inflows moderated slightly: to US$62.5bn in 2014 from US$64.0bn in 2013; i.e., FDI financed only 69% of the current account deficit over the last 12 months, down from 120% in 2012 and 127% in 2011
FDI inflows reached US$62.5bn in 2014 but financed only 69% of the current account deficit over the last 12 months.
According to the monthly FGV Index, consumer confidence (CC) posted a large 6.7% mom sa decline in January. The overall consumer confidence index is now at its lowest level since the index started to be reported in September 2005. Furthermore, consumer confidence is currently 30.2% below the April 2012 peak and 22.2% below the average of the last five years.
Business and consumer confidence remains very depressed given the anticipation of policy tightening, rising inflation, higher taxes, significant increases in utility and transportation tariffs, deteriorating labor market conditions, and more exigent credit conditions. This poses major headwinds for private consumption in the coming months.
Consolidated Public Sector Primary Fiscal Balance (January); the consolidated public sector posted a very disappointing 0.63% of GDP primary deficit in 2014, down from surpluses of 1.9% of GDP in 2013, and 2.4% of GDP in 2012. This was the worst fiscal outturn in 16 years (since November 1998). The erosion of the primary surplus in recent years was driven chiefly by the weak fiscal numbers of the Central Government, whose primary balance declined from 1.55% of GDP in 2013, to a deficit of 0.40% of GDP in 2014.
The overall public sector fiscal deficit widened to a very high 6.7% of GDP (from 3.25% of GDP in 2013 and the highest fiscal deficit since August 1999) given the very high 6.1% of GDP net interest bill and steady erosion of the primary fiscal surplus.
Gross general government debt rose to 63.4% of GDP in 2014, up from 56.7% of GDP in 2013 and 53.4% of GDP in 2010 (the highest level since at least 2006).
