Five hot topics for Brazil markets this upcoming week

RIO DE JANEIRO, BRAZIL – In the U.S., the Federal Open Market Comittee (FOMC) meeting and signs from Fed chair Jerome Powell about the pace and timing of the stimulus withdrawal should affect assets, in a week that will also feature meetings of other Central Banks.

In Brazil, the market will confirm the COPOM minutes and the inflation report after the hawkish statement and will monitor the Central Bank in terms of foreign exchange after Friday’s spot dollar auction. The agenda also features a Petrobras dividend payment, the ANP oilfield auction and IBC-Br data in Brazil, as well as industry and retail data in the U.S. and China.

FOREIGN INTEREST RATES

Markets should remain volatile over the week given the potential for signals about stimulus from the world’s largest Central Banks. The FOMC meets on December 15 and is expected to keep rates steady, but Powell’s announcement and speech should influence interest rate expectations.

The European Central Bank’s decision, followed by a statement from President Christine Lagarde, and meetings of the British and Japanese central banks will also be on the radar. The U.S. and China will release retail sales and industrial production data.

MINUTES AND ECHANGE RATE

The market is looking for more detailed explanations in the COPOM minutes on Tuesday and in the Quarterly Inflation Report on Thursday about the factors that led the Central Bank to use a more hawkish tone when announcing the new increase in the SELIC rate to 9.25%.

The COPOM emphasized that it will maintain its strategy until it consolidates not only disinflation but also the anchoring of expectations.

November’s lower than expected IPCA (Extended National Consumer Price Index) has pushed down future interest rates and has led the market to consider a lower cycle of monetary tightening, albeit not ruling out a new hike of 1.5 percentage points in February.

Services and IBC-Br data will close the October series of activity figures, which have been disappointing in recent reports. The market is also monitoring the Central Bank, which sold the spot dollar on Friday after outflows pressured the exchange rate.

OMICRON

The Fed’s decision will come after concerns over the new strain of the coronavirus weighed on markets again in recent sessions.

The U.S. seems to be heading for a year-end holiday crisis as virus cases and hospitalizations increase, while London companies have begun telling thousands of employees to work from home and cities worldwide are imposing restrictions.

POLITICAL SCENE

The portions of the Court-ordered federal debt proposed constitutional amendment (PEC) not approved by the Chamber and Senate will be attached to another amendment, to be discussed in the Chamber’s plenary session on December 14.

The consensual portions were enacted last Wednesday, making room for the funding of the R$400 (US$71) “Auxílio Brasil” (Brazil Aid). As the legislative year draws to a close, political news focuses on moves toward 2022.

With his popularity dropping, President Bolsonaro joined the PL party, while ex-President Lula maintains a clear lead in the presidential election polls, which show ex-Justice minister Sergio Moro ahead of the other “third-way” candidates but still far behind the frontrunners.

PETROBRAS AND ANP

Petrobras will pay an additional R$31.8 billion in dividends on December 15. On the same day, Brazil’s antitrust agency CADE is due to decide on the validity of the proposed merger of car rental behemoths Unidas and Localiza.

Two days later, ANP will hold the second round of bidding under the sharing regime for the offshore areas of Sépia and Atapu, in Santos Basin.