Analysts at Rabobank expect savings of BRL 800 billion from the pension reform in savings for the next ten years, consistent with their forecast of USD/BRL at 3.70/USD for end-2019.
Key Quotes:
“Local assets had another positive week, boosted externally by an increasingly dovish tone from the Federal Reserve and internally by further advances (even if in baby steps) in Congressional discussions about reforms. A Supreme Court’s “green light” for the government’s privatization program was good news for an economic agenda focused on greater investment and better productivity.”
“For the week (at least by the printing time), BRL gained c. 1.6% vs the USD (and c. 0.8% vs. trading-peers currencies), heading towards 3.85/USD – strongest level in nearly two months. Nominal rates kept the bull-flattening rally, with yields falling c. 5-40 bps across the curve. The latter was also favoured by this week’s conomic data, pointing to weaker than expect activity and slower than expected inflation in Q2.”
“Industrial production (IP) gained 0.3% m/m (-3.9% y/y) in April, with the headline largely impacted by headwinds in the mining sector (iron ore). Despite some encouraging details in manufacturing, headline industrial activity (and business investment) started Q2 on the back foot, imparting further downside risks for (the already depressed) GDP forecasts this year.”
“In politics, the House’s Special Commission could see the pension reform report sometime this week. Yet the chances of a delay are significant. Financial markets will (continue to) pay close attention to the items that Congress will supress (or change) from the Executive’s original proposal. That will be a guide for the expected efficacy (i.e. from a cost-savings standpoint) of this reform. Our scenario counts on BRL 800 billion in expected savings for the next ten years, about in line with consensus and consistent with our BRL forecast of 3.70/USD for end-2019.”
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