- Uncertainty about the viability of budget targets for 2024 may increase investors’ risk premium requirements for Brazilian assets and decrease foreign investments, weakening the BRL.
- Disclosure of more moderate data for the American economy can reinforce the perception that the interest rate level in the country has already reached its peak and contribute to weakening the USDBRL.
- Disclosure of data on the Chinese economy can reinforce the perception of a faster rebound, favoring the performance of currencies from commodity-exporting countries like Brazil.
The week in review
The USDBRL ended the week higher, closing Friday's session (10) at BRL 4.914, a weekly increase of 0.3%, but a monthly decrease of 2.7% and an annual decrease of 6.9%. The dollar index closed Friday's session at 105.8 points, a change of +0.8% for the week, -0.2% for the month, and +2.4% for the year. The trade reacted to statements from Federal Reserve authorities about American monetary policy, the release of IPCA in Brazil, and the progress of the economic agenda in Congress.
Expected impact on USDBRL: bullish
The focus of investors this week should be the discussion about the credibility of the fiscal targets for 2024. Last week, the Mixed Budget Committee (CMO) approved the Budget Guidelines Law Bill report for the 2024 Budget, maintaining the original target of zero primary deficit, just like in approving the new fiscal framework. Nonetheless, the debate about a change in this objective remains open without eliminating investors' insecurity about a possible relaxation in managing the federal government's public accounts. The rapporteur, Congressman Danilo Forte (União-CE), established a deadline of Thursday (16) for the presentation of amendments to the project, so there is still the possibility of changes before the project is considered in the Plenary scheduled for the week of November 20. While some sectors of the Administration advocate for an immediate change in the target to a deficit of 0.5% of the Gross Domestic Product, other groups argue for its maintenance at this time, with a possible modification in March. What seems consolidated, however, is the unwillingness to cut expenses to adjust the fiscal result to the established fiscal objectives, and this is the origin of the greatest perceptions of fiscal risks to Brazilian assets, which can increase the demand for risk premiums by investors and weaken the BRL.
Expected impact on USDBRL: bearish
This week will also see the release of October indicators for the United States. The Consumer Price Index (CPI) should maintain the moderation trend from previous months, with a median expectation of a 0.1% increase for the overall index and a 0.3% increase for the core indicator, excluding the volatile components of food and energy. On the other hand, retail sales are expected to ratchet down their pace of expansion, remaining stable in the overall indicator and growing 0.3% in the core. Reading can reinforce that the American economy is experiencing a "soft landing," gradually tempering its inflation and maintaining a stable pace of growth, even though authorities remain cautious about the prospects for the coming months. Last week, Federal Reserve (Fed) Chairman Jerome Powell gave a harsh rating regarding the inflationary picture for the United States. In addition to repeating that it is still too early to believe that the battle against inflation is won and that the Fed will not hesitate to raise interest rates more times if the data justifies such measures, Powell stated that he is "not confident" that the current level of monetary tightening is enough to bring price indices to the institution's continuous 2% target and that it is necessary to consider both the risks of being deceived by a few months of favorable data and the risks of excessively slowing down the economy. Additionally, Powell declared that the "disinflation" that has occurred so far has been relatively painless and driven by supply items, such as the normalization of the logistics chain and the fall in prices of industrial goods and commodities. Nonetheless, he expects these contributions to be coming to an end so that the fall in prices from now on will need to be achieved through a reduction in aggregate demand, caused, in turn, by tightening financial conditions.
Expected impact on USDBRL: bearish
This week, data on manufacturing, retail sales, and the unemployment rate for October will be released. Other indicators of the month have shown a mixed performance so far, not providing a consistent reading on the country's economic activity pace. Thus, this week's data can offer financial market agents a more updated reading of the country's situation and economic dynamism.
The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI . StoneX is a trading name of StoneX Financial Ltd (“SFL”). SFL is registered in England and Wales, Company No. 5616586. SFL is authorized and regulated by the Financial Conduct Authority [FRN 446717] to provide to professional and eligible customers including: arrangement, execution and, where required, clearing derivative transactions in exchange traded futures and options. SFL is also authorised to engage in the arrangement and execution of transactions in certain OTC products, certain securities trading, precious metals trading and payment services to eligible customers. SFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2017 for the provision of payment services. SFL is a category 1 ring-dealing member of the London Metal Exchange. In addition SFL also engages in other physically delivered commodities business and other general business activities which are unregulated and not required to be authorised by the Financial Conduct Authority. StoneX Group Inc. acts as agent for SFL in New York with respect to its payments services business. StoneX APAC Pte. Ltd. acts as agent for SFL in Singapore with respect to its payments services business. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries.
Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. Past performance of any futures or option is not indicative of future success. Indicators are not a trading system and are not published as a specific trade recommendation. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.
© 2023 StoneX Group Inc. All Rights Reserved.