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Four Things We Learned From the Brazilian Macro Data
1. Growth is still holding up. Despite aggressive BCB tightening real growth continues to hold in the 3% y/y range, albeit with signs of weakening in the underlying activity data.
2. Inflation gained speed. Meanwhile, pretty much every inflation indicator has increased, with CPI above 5% y/y and a big jump in the GDP deflator. This is temporary in our view ... but will likely last another quarter or two.
3. Budget consolidation maintained. So far the fiscal improvement has maintained, with an ongoing expenditure consolidation. And the earlier apparent gaps in the budgetary funding data have been resolved.
4. Copom keeping the pressure on. Unsurprisingly, given the strong nominal growth outturn, the central bank hiked again last month (with a potential pause ahead), taking rates to 20-year highs and keeping real rates at record levels as well. This is unsustainable - and we expect some easing in late 2025 as growth subsides.
Meanwhile we stay long BRL, neutral equities and short dollar sovereign. We continue to earn BRL carry given the highest real rates on the planet and moderate underlying money and demand pressures. By contrast, it's hard to be too excited about corporate earnings and growth given the epic magnitude of rate tightening. And dollar sovereign spreads look low in an environment where the public debt/GDP ratio is still under rising pressure.
Four Things We Learned From the Brazilian Macro Data (PDF)
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