November 28, 2022

The Catholic Transcript

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Direct Treasury: Interest rates on inflation bonds fall with downward revision in IPCA . forecasts

Market Radar on Monday (13) focuses on the new forecast released today in Central Bank Concentration Report. For the first time since March, financial markets have revised downward estimates of official inflation this year, which now stand at 10.5%, versus 10.18% in the previous survey.

Even with the slight improvement, financial agents’ expectations are that inflation will continue under pressure next year and end at 5.02% – the same value as last week’s forecast.

After the Monetary Policy Committee (Copom) statement which was read as more extremist (Tends to tighten monetary policy) by the market, and economists consulted by the central bank also increased their forecast for Selic increase in 2022, from 11.25% to 11.50%.

Analysts are also awaiting more information on the monetary policy behavior that BC should adopt with the release of Copom’s minutes tomorrow. In this context, the government bonds traded on the Tesouro Direto are performing in a mixed manner this Monday morning. Fixed-rate papers are showing little price increases or are trading near stability, while interest rates offered by inflation-linked bonds are falling.

For example, the 2024 advance treasury interest was at 10.57% p.a. on the morning’s first update. The ratio is in line with the 10.58% annualized seen on Friday (10). Meanwhile, the former 2031 treasury with semi-annual interest gave a return of 10.43% annually, compared to 10.41% in the previous session.

Thus, the difference in yield between the shortest leaf (2024) and the longest (2031) was 14 basis points (0.14 percentage points) at the opening of the business. The distance between them has widened again, having reached about 2 basis points at the beginning of this month, with the partial decision of the PEC dos Precatórios and the opinion that the central bank should not raise interest rates too much next year.

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Among the inflation-correlated securities, in the first update of the day, the real Treasury IPCA+ 2035 and 2045 interest rates were at 4.94% annually, down from the 5.02% seen on Friday afternoon. Meanwhile, bonds due in 2055 and with semi-annual interest payments delivered real returns of 5.01% versus 5.06% in the previous session.

Check the rates and rates of all government bonds available for purchase at Tesouro Direto that were presented on Monday morning (13):

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Source: Tesouro Direto

to focus

Within the economic docket, financial agents reflect the new revisions to the focus report released today. Although forecasts for official inflation as measured by the National Expanded Consumer Price Index (IPCA) have been lowered this year, activity will continue to show signs of weakness this year — which tends to worsen in 2022.

In the document released today, economists consulted by the Monetary Authority cut their GDP growth estimates from 4.71% to 4.65% in 2021. For 2022, the forecast is now for an expansion of 0.50% of activity, versus a previous forecast of 0.51%.

Finally, in the exchange rate, estimates for 2021 have been raised from BRL 5.56 to BRL 5.59. By the end of next year, the dollar is expected to trade at 5.55 Brazilian Real – the same forecast as last week.

PEC of Precatório, Guedes and vaccine passport

On the political agenda, investors are awaiting news on the PEC dos Precatório. The parts of the proposal that have not been agreed upon between the House and the Senate will be added to another amendment that will be discussed in the House plenary tomorrow (14).

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This is because the consensual sections were published last Wednesday (8), allowing the financing of Auxílio Brasil in the amount of R$400.

Also on the political agenda, the federal government should pass a new law with rules for travelers entering Brazil, following a decision by Minister Luis Roberto Barroso, of the Federal Supreme Court (STF).

Details of this measure were discussed at a meeting held yesterday (12) in Palácio do Planalto. President Jair Bolsonaro opposes the vaccine passport used in most countries and is defended by specialists to stop the spread of the virus.

Investors are also following the statements made yesterday by Paulo Guedes, Minister of Economy, in an interview with Band TV channel Canal Live.

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At the time, the Minister of Economy said he believed in the resilience of the Brazilian economy, although he admitted it The country has problems.

“It is true that we have problems, it is true that we have an open future. The minister said that Brazil is the largest open investment front, it has carried out many important structural reforms, GDP debt is much lower than expectations, so the future is in our hands.

international scene

Meanwhile, on the outside scene, US futures indexes advanced on Monday morning (13), after the S&P 500 posted its best week since February, recovering from a massive sell-off sparked by omicron variable fears.

Investors are also waiting for news about the conduct of monetary policy in the country. On Wednesday (15), the US Central Bank’s Open Market Committee (FOMC, its English acronym) meets and should set the tone for withdrawing stimulus to the US economy.

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In Europe, European markets are running upward as monetary policy decisions take center stage. In addition to the US Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank are expected to make monetary policy and stimulus decisions this week.

Geopolitics remains in focus. Yesterday, the G7 foreign ministers warned Russia against reducing its activities in Ukraine or facing “serious consequences”.

Asian stock markets closed in mixed trends. In China, indicators responded to expectations that the government might adopt new measures to stimulate the economy, such as lowering taxes and anticipating investments, to keep the country’s growth within a reasonable range.

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