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Bolsonaro’s Newfound Appetite for Spending Has Markets on Edge By Bloomberg

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© Reuters. Bolsonaro’s Newfound Appetite for Spending Has Markets on Edge

(Bloomberg) — Brazil’s President Jair Bolsonaro, who rose to power by painting himself a fiscal bulldog, is suddenly pushing to ramp up social spending, leaving markets startled and budget experts confounded.

After doling out some $57 billion in cash this year, the president on Monday revived plans to make part of that aid permanent. To pay for the monthly handouts, he pitched tapping into education funds and pushing payments on legal settlements down the road.

The backlash was fast and fierce: Brazil’s real is the world’s worst-performing major currency this week, and his own economy minister criticized the plan as a bad workaround. At the heart of the market’s panic is a widening primary deficit that Brazil badly needs to shrink.

“The problem is there’s no money,” said Gustavo Rangel, chief Latin America economist at ING Financial Markets.

Brazilian stocks and its sovereign debt rebounded Wednesday and Thursday as investors dug deeper into the numbers and decided Bolsonaro wouldn’t carry out the plan.

“The way it would be financed wasn’t seen as credible,” said Camila Abdelmalack, chief economist at Veedha Agentes Autonomos de Investimentos. “You can’t finance a welfare program with a liability.”

While Bolsonaro faces an uphill battle in getting his plan approved, his newfound appetite for social spending still spooked budget hawks. They can forgive him for the unprecedented stimulus needed to offset the coronavirus crisis — governments around the world pumped trillions of dollars into their economies and few can argue it wasn’t needed — but there’s little wiggle room for much more in Brazil. Already, Latin America’s largest economy is forecast to post a record budget gap of 12% of GPD this year.

“It’s clear that Bolosonaro doesn’t have the necessary conviction about the importance of fiscal discipline,” said economist Zeina Latif.

Improving Ratings

Bolsonaro’s embrace of state spending comes as his approval ratings have been steadily rising ever since the government ushered in what came to be known as corona-vouchers. The monthly aid for informal workers benefited some 67 million people, or about 32% of all Brazilians, and actually lifted large swathes of the population out of poverty.

Read More: Brazil Hands Out So Much Covid Cash That Poverty Nears a Low

It’s credited by economists for saving Brazil from the deeper recessions that have rocked neighboring countries. But its astronomical price tag — 320 billion ($57 billion) — has stoked concerns the South American nation is headed toward a financial cliff even as it began paring back the aid this month. Bolsonaro’s latest pitch, which is known as Citizen Income, comes with a price tag of 50 billion reais.

The plan is “creative” but inviable, said Daniel Rico, Latin America currency strategist at RBC Capital Markets LLC in New York. “It’s becoming harder and harder for the government to find sustainable ideas to fund the social programs without breaching the cap” on spending that’s constitutionally mandated, Rico wrote in an email to clients.

The move, meanwhile, has also become the latest flash point between Bolsonaro and Paulo Guedes, economy minister and market darling. After stocks and the currency tanked Monday, Guedes batted down the idea of diverting money from legal funds.

“We’re here to honor fiscal commitments and debt,” he said in a news conference Wednesday.

Guedes’s decision to withdraw support to finance the Citizen Income program ​​using court-ordered payments annoyed government leaders in congress and took negotiations back to square one, according to four people with knowledge of the matter who asked not to be named because discussions are private. The economic team now sees any solution to the impasse coming only after municipal elections in November.

In any case, Bolsonaro said on late Thursday that his confidence in the economy minister remains at 99.9%. And major voting blocs of lawmakers have signaled their opposition to raising the fiscal-spending celling again, after already boosting it once this year.

“We don’t think wholesale abandonment of the spending cap is likely,” said James Barrineau, head of emerging-market debt at Schroder Investment in New York. “Ultimately the economic team and Bolsonaro are closely attuned to market disquiet when it erupts.”

 

 





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Both sides want EU trade deal but UK sovereignty must be respected

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© Reuters. FILE PHOTO: Chief Secretary of the Treasury Stephen Barclay is seen outside Downing Street in London

LONDON (Reuters) – A Brexit trade deal is in both sides interests but can only happen if the European Union respects British sovereignty over fisheries, UK junior finance minister Stephen Barclay said on Friday.

Asked if there would be a deal, Barclay said: “I hope so.”

“But that deal needs to reflect that fact that we’re leaving the EU, we will regain control of our fisheries – it was a key issue for many of your viewers during the Brexit debate and it is important that the deal reflects that,” he told Sky News.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Dollar Up, Ending Tough Week, Investors Digest Trump-Biden Debate By Investing.com

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© Reuters.

By Gina Lee

Investing.com – The dollar was up on Friday morning in Asia, ending a tough week as it saw losses against the euro and its largest weekly drop against the yen in a month. U.S. President Donald Trump and Joe Biden participated in a restrained final presidential debate before the Nov. 3 presidential election earlier in the day.

The that tracks the greenback against a basket of other currencies inched up 0.08% to 93.043 by 1:02 PM ET (5:02 AM GMT). Although the dollar remained above Wednesday’s seven-week low, it was down 0.7% for the week and remained in the bottom half of a months-long range.

Trump adopted was more restrained that during the first presidential debate on Sep. 29, where he constantly interrupted both Biden and moderator Chris Wallace.

Bookmaker Ladbrokes (LON:) tweeted that betting markets showed a small movement in Trump’s favor in the immediate aftermath of the debate. However, some investors expected caution and no big moves ahead of the election.

“People are just closing out longs ahead of the election just in case Biden isn’t [elected] … we’re coming into that eye of the storm now where it takes a bit of a brave soul to put on new positions ahead of the election,” Pepperstone head of research Chris Weston told Reuters.

The pair edged down 0.11% to 104.70. The yen saw its highest weekly rise since mid-September, reversing some overnight losses after House of Representatives Speaker Nancy Pelosi expressed optimism about a consensus on the latest stimulus measures. Investors also turned to the safe-have yen over the anticipated turbulent trade ahead of the election.

The pair inched down 0.04% to 0.7112. Across the Tasman Sea, the pair inched down 0.10% to 0.6667. New Zealand released a weaker-than expected consumer price index earlier in the day, which and in the third quarter.

The pair inched up 0.02% to 6.6835. The yuan had held onto gains against the greenback as Wang Chunying, spokeswoman for China’s State Administration of Foreign Exchange (SAFE), told a news conference that the yuan has been more stable than expected.

Wang’s comments suggested that Chinese authorities are not too worried about the yuan’s recent rise and helped the yuan’s onshore trade to soar up to about half a percent shy of the 27-month peak it saw on Wednesday.

The pair edged down 0.15% to 1.3062. The pound saw losses on Thursday over the Brexit uncertainty, with investors monitoring the intensified talks between the U.K. and European Union, started on Thursday as a last-ditch effort to reach a deal.

The U.K. and Europe will release Purchasing Managers’ Index (PMI) figures due later in the day, with investors gauging the economic damage as the region battles a second wave of COVID-19 cases. The U.S. will also release its PMI figures later in the day.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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S&P 500 Futures Lower on Election Security Issues, APAC Stocks May Fall

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S&P 500, HANG SENG INDEX OUTLOOK:

  • S&P 500 index futures fell on election security concerns, fading stimulus hopes
  • Q3 corporate earnings remained strong, Tesla smashed EPS forecasts
  • Hang Seng Index (HSI) may form a “Double Top” after failing to break a key resistance at 24,750

S&P 500 Index Outlook:

“Risk off” sentiment swept Asia-Pacific markets at open as US national security officials said that Iran and Russia have both obtained information about American voters’ registrations and are trying to influence the election outcome. All three major US equity indices fell over 0.5% immediately after the news, as uncertainty surrounding the US election surged.

Save-haven bid fueled a rally in the US Dollar, while the risk-linked Australian and New Zealand Dollars fell. Asia-Pacific equities looked set to open broadly lower, led by the Nikkei 225 (-0.71%) and ASX 200 (-1.11%).

Crude oil prices widened the losses to 4.2% as sentiment soured. Last night, the API report showed an unexpected rise in US stockpiles, dragging the energy sector securities lower. Besides, market sentiment was also weighed by fading hope for an immediate stimulus package and rising coronavirus cases across the country. Some 60,598 new cases were reported in the United States over the last 24 hours, adding to its total cases of 8.35 million.

Equities Forecast

Equities Forecast

Recommended by Margaret Yang, CFA

What is the road ahead for equities this quarter?

The bright spot might be strong corporate earnings, with continued to smash expectations from the upside. Tesla has delivered strong Q3 results, and its share price surged more than 3% after market close. Tesla’s Q3 revenue, earnings-per-share (ESP) and forward guidance have all smashed analysts’ forecasts, and the company appears on track to delivering half a million vehicles in 2020.

On Wednesday, 25 out of 28 major US companies released better-than-expected earnings (table below). So far in the earnings season, more than 80% of the S&P 500 constituents have beaten their EPS forecasts.

S&P 500 Earnings – October 21st2020

Name

Date

Period

Actual

Estimate

Surprise

Thermo Fisher Scientific Inc

21/10/2020

Q3 20

5.63

4.328

30.10

KeyCorp

21/10/2020

Q3 20

0.41

0.366

12.00

Avery Dennison Corp

21/10/2020

Q3 20

1.91

1.562

22.30

Teledyne Technologies Inc

21/10/2020

Q3 20

2.53

2.362

7.30

Baker Hughes Co

21/10/2020

Q3 20

0.04

0.038

5.30

Nasdaq Inc

21/10/2020

Q3 20

1.53

1.467

4.30

Interpublic Group of Cos Inc/T

21/10/2020

Q3 20

0.53

0.329

61.10

Biogen Inc

21/10/2020

Q3 20

8.84

8.045

9.90

Abbott Laboratories

21/10/2020

Q3 20

0.98

0.908

7.90

NextEra Energy Inc

21/10/2020

Q3 20

2.66

2.589

2.70

Northern Trust Corp

21/10/2020

Q3 20

1.32

1.382

(4.60)

Verizon Communications Inc

21/10/2020

Q3 20

1.25

1.216

2.80

Amphenol Corp

21/10/2020

Q3 20

1.09

0.876

24.40

CSX Corp

21/10/2020

Q3 20

0.96

0.921

4.20

Whirlpool Corp

21/10/2020

Q3 20

6.91

4.202

64.40

Kinder Morgan Inc

21/10/2020

Q3 20

0.21

0.204

2.90

Las Vegas Sands Corp

21/10/2020

Q3 20

(0.67)

(0.738)

9.20

Lam Research Corp

21/10/2020

Q1 21

5.67

5.193

9.20

Align Technology Inc

21/10/2020

Q3 20

2.25

0.613

267.00

Chipotle Mexican Grill Inc

21/10/2020

Q3 20

3.76

3.46

8.70

SL Green Realty Corp

21/10/2020

Q3 20

1.75

1.539

13.70

TechnipFMC PLC

21/10/2020

Q3 20

0.16

0.213

(24.90)

Globe Life Inc

21/10/2020

Q3 20

1.75

1.723

1.60

Edwards Lifesciences Corp

21/10/2020

Q3 20

0.51

0.443

15.10

Crown Castle International Cor

21/10/2020

Q3 20

1.24

1.438

(13.80)

Discover Financial Services

21/10/2020

Q3 20

2.45

1.585

54.60

Xilinx Inc

21/10/2020

Q2 21

0.79

0.729

8.40

Equifax Inc

21/10/2020

Q3 20

1.87

1.585

18.00

Source: Bloomberg

On the political front, the last presidential election debate will be held at 9am Singapore time on Friday, October 23rd (9pm ET, October 22nd). Traders may get more clues from this debate with regards to Biden’s and Trump’s policy differences. Markets appeared to have heavily priced in a Biden-win scenario, rendering them fragile to unwinding activities should the election outcome flip against expectations.

Sector-wise, 9 out of 11 S&P 500 sectors closed in the red, with 65% of the index’s constituents ending lower yesterday. Energy (-1.99%) was a clear drag to the index as crude oil prices fell more than 4%. Besides, industrials (-0.99%) and consumer discretionary (-0.63%) were also were among the worst performers, whereas communication services (+1.29%) and consumer staples (+0.12%) wereperforming better.

S&P 500 Index Sector Performance 21-10-2020

S&P 500 Futures Lower on Election Security Issues, APAC Stocks May Fall

Source: Bloomberg, DailyFX

Forex for Beginners

Forex for Beginners

Recommended by Margaret Yang, CFA

Why do interest rates matter for currencies?

Technically, the S&P 500 index appears to have entered a consolidative period since mid-October (chart below). The near-term trend has likely turned bearish as lower lows were observed. An immediate support level can be found at 3,420 – the 38.2% Fibonacci retracement. Breaking below 3,420 may open room for more losses towards the next support level at 3,380 – the 50% Fibonacci retracement.

S&P 500 IndexDaily Chart

S&P 500 Futures Lower on Election Security Issues, APAC Stocks May Fall

Hang Seng Index Outlook:

Hong Kong’s Hang Seng Index (HSI) may struggle to break above a key resistance level at 24,750 due to external headwinds. The FBI’s investigation on election security issues have led to a broad decline in Asia-Pacific stocks, which could weigh on sentiment in Hong Kong.

Technically, the HSI failed to break above a key resistance at 24,750 – the 100-Day SMA. A retracement from here may lead to the formation of a “Double Top” pattern, which is a bearish indicator. The overall trend of HSI remains bullish, however, as the 20-Day Simple Moving Average (SMA) line is about to form a “Golden Cross” by crossing above the 50-Day SMA line. A breakout above 24,750 may open room for more upside towards the 24,900-25,000 area.

Hang Seng Index Daily Chart

S&P 500 Futures Lower on Election Security Issues, APAC Stocks May Fall

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— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter





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