Brazilian Real: Dollar and long-term rates fall, amid US and China activity (July 15)

RIO DE JANEIRO, BRAZIL – Around 10 AM, the commercial dollar retreated 0.13% to R$5.0796, while the U.S. currency appreciated against strong rivals but gave mixed signals against emerging peers of the real.

At the same time above, long-term interest rates accompanied the currency’s decline. The rate of the Inter-financial Deposit (DI) contract for January 2022 went from 5.77% in the previous adjustment to 5.79%; the DI for January 2023 remained stable at 7.28%; the contract for January 2025 fell from 8.26% to 8.25%, and the DI for January 2027 was down from 8.66% to 8.63%.

Despite the positive mood in local assets at the opening of the day, in general, the bias is negative for risk assets abroad, with New York futures and European stock markets in negative territory this morning, as well as oil.

The reason for such caution in the markets is the confirmation of the loss of vigor of the Chinese economy, whose GDP grew 7.9% in the second quarter on an annual basis, a significant deceleration from the 18.3% expansion seen in the previous quarter. At the same time, the drop in the yields of the ten-year Treasury bond shows the search for security on the part of investors.

Two different manufacturing sector data for July in the United States gave mixed signals to financial agents, with the Empire State, released by the New York Federal Reserve (Fed), showing acceleration and the Philadelphia Fed’s index losing strength compared to the previous reading. Meanwhile, the number of initial claims for unemployment insurance retreated to 360,000 last week, in line with the consensus.

Domestically, the agenda of market indicators is empty. Still, it is worth mentioning the auction of prefixed securities of the National Treasury, which tests the market’s appetite for Brazilian debt and may influence the behavior of future interest rates throughout the trading session.

The National Treasury Bills (LTNs), short-term fixed-rate papers, have maturities in April 2022, July 2023, and January 2025. Meanwhile, the National Treasury Notes series F (NTN-Fs), long-term fixed-rate, mature in January 2027 and January 2031. The Treasury publishes the notice of the offer around 10:30 AM.

On the political front, the Senate Covid CPI continues its work by hearing Cristiano Carvalho, attorney at Davati Medical Supply who is to be questioned about an alleged request for a bribe. Congress, meanwhile, is expected to vote today on the 2022 LDO (federal budget law) before the start of the parliamentary recess next week.

A point of attention is the health of President Jair Bolsonaro, who remains hospitalized in São Paulo, to take care of an intestinal obstruction. Doctors are still evaluating the need for emergency surgery.