Dramatic Market Adjustment Continues

Brazilian President Bolsonaro replaced the University of Chicago-trained economist at the head of Petrobras with General Silva e Luna, who has been running the Itaipu hydroelectric dam for the last two years, pending confirmation by the Petrobras board. Emerging markets more broadly were under pressure, but Brazil was especially punished. It was not so much about the general per se. Investors fear that as Bolsonaro's support wanes, he will retreat further from its pro-business stance. The government's cash distribution ended in December. Economic Minister Guedes is trying to avoid being entangled and is seeking a constitutional amendment to allow another round of aid to the poor, apparently paid for by cuts in public spending in the future. Petrobras shares fell by over 20% to three-month lows. Brazil's real lost 1.3% yesterday after staging a bit of a recovery spurred by the central bank offering dollar swaps. Year-to-date, the real is off about 4.8% after falling by around 22.5% in 2020. Brazil's central bank meets on March 17 (the same day as the FOMC meeting concludes), and the swap market is pricing in the likelihood of a 50 bp rate hike.  

The US dollar made a marginal new low (since April 2018) against the Canadian dollar yesterday at almost CAD1.2580. However, it closed back above CAD1.2600 and is straddling the level today. In recent weeks, the greenback has traded below CAD1.26 but has failed to close below it once. Initial resistance is seen near CAD1.2660 now. The greenback rose to around MXN20.8335 yesterday, its highest level since early last November. It is about a 4.75% dollar gain since the low on February 15 near MXN19.8925. It is consolidating now in a narrow range. The MXN20.76 area corresponds to the (50%) retracement of the US dollar's decline from the election night spike to almost MXN22.00. The next retracement (61.8%) is a little above MXN21.00. Look for a break of the MXN20.60-MXN20.80 range to signal the near-term direction.  

1 2 3 4
View single page >> |

Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.