Brazil: Softening economic activity in Q1- Rabobank

Analysts at Rabobank point out that for the week of Apr 30 to May 04, Brazilian assets sold off relatively in line with other EMs, following an apparent tightening in global financial conditions.

Key Quotes

“BRL lost about 2.0% for the week, closing around 3.52/USD – amongst the weakest levels since mid-2016. Brazil’s 5-year CDS rose 16 bps (other EMs: +6bps), closing around 185 bps, nearly a 7-month high. Elsewhere, the belly of the (DI futures) yield curve put back a bit of premium, with Jan-20 and Jan-21 tenors gaining about 15bps (to 7.06% and 8.06%, respectively).”

“Activity data (e.g. March industrial production) confirmed a softening in Q1, which we see as consistent with our below-consensus GDP forecast for this year (2.2% vs. 2.75%).”

“The week ahead features April IPCA inflation (Thu) and March retails sales (Fri), which we believe will continue to point to slow core prices and a good pace of consumer spending.”