Brazil had not been progressing as well in 2011-12 as in the
previous decade and there were a number of concerns; lack of action to
improve corruption, poor infrastructure
investment, increased personal credit and inflation .There were also low grade ‘barbecue
protests’
2013
January started with worries about power shortages (due to
dry weather impact on hydroelectricity), and revisions to statistics with GDP
down and inflation up.
By the end of February Brazil stock market was the worst
performer, and there were worries about an increasing bubble in real estate and
increasing inflation.
Inflation continued to be a problem in the next couple of
months and Brazilian’s continued to spend. And the Q1 GDP figures were bad.
Investor sentiment was poor.In other news, a Brazilian assumed control of WTO
and the first oil auction took place in May
June saw emerging market problems add to concerns. With the
real and market falling. Protests accompanied the Confederations cup with up to
1 million by late June.
The President had to make promises of changes but although
the stats seemed a little better in August there were concerns that these were
masking the inflation and other problems and that the real estate bubble was a
real cause for concern.
But by September the emerging market situation settled down
and the Real rallied. However the events led to the establishment of new
parties which threaten the incumbent for 2014.Nevertheless some investors
though the worst might be over. October also saw a major oil field sale
There was an internet security crackdown that raised more
concerns about interventionist policies in November.
Released in December The 3rd quarter turned out
to be the worst for 5 years and consumer confident had fallen.
2013-Real
Having shown continual strength until mid 2012, the Real in
the latter part of 2011 and early 2012 reflecting increasing concerns about the
economy, falling against the dollar to levels not seen since 2009. But the
latter half of 2012 saw more stability. Now what about 2013 and beyond?
Although there were economic concerns in the early part of
the year, there was sufficient long term momentum to sustain the Real and
Brazil implemented a currency swap agreement with China.
The value was maintained into early April and the government
was able to keep rate steady throughout the period. Inflation was however,
becoming a concern. But statistics and
external events were accumulating in a way that meant the situation could be
sustained no longer. And the government was forced to raise the bank rate in
April.
By May the increasingly poor outlook led to another rate
rise and the Real hit a 4 year low vs the dollar.
June saw rapid falls again and the government dismantled
some currency controls/taxes to make it more attractive. The external emerging
market situation was also creating downward momentum.
July saw another rate rise and a further currency swap, then
as the global emerging market currency situation escalated, the Real fell
rapidly into August. By the end of the
moth it had fallen nearly 40% since 2012 and rates rose again to 9%.
The international situation settled down in September and
the Real began to quickly recover some ground.
But as October saw a return to concerns over Brazil
fundamentals the Real started to fall again. Another rate rise was in order.
November though things still looked weak and this resulted
in yet another rate rise to 10%
This did little to reassure though and the currency ended
the year close to its August lows.
So obviously we start 2014 with the hope that the World Cup
will bring economic and political benefits, even if these are short term.
Unfortunately there are unsettling influences, possibly from
elsewhere in the world which could create more imbalances in the first three
months. Support for Roussef is likely to be moderately ok however.
April and May look like being relatively quiet months. There
are some adjustments and compromises that have to be made by the leadership but
the worst problems are on the back burner.
June and July are obviously dominated by a party atmosphere. There may be bad stats but no one pays to much attention.
There is a risk of things getting a little out of hand, (
perhaps some protests although it looks more like excessive behaviour) and need
some clamping down. By the time of the final there is a big boost in sentiment.
After the event, however, the situation is a little odd. The
people and government are briefly at one but there might be a sense of
disappointment or unrealistic expectations. Added to this there is a likelihood
of some more poor stats In July and August.
While September is uneventful, October sees the election and
while there are signs of change there is also evidence to support the continued
female leadership.
However by the end of November we see a new picture
emerging, which is more responsible and challenging.
The picture takes shape further in December as there is a
much more determined mood with a bigger strategy for development. The
reservation must be that there is low grade widespread resistance which is
likely to be an obstacle.
2014 Real
Some of the long term influences that created the 2013
depreciation conditions and the series of rate rises have abated a little in
early 2014. Far more likely this month
is a one off sharp shock followed by a
recovery.
February to April see a definite reduction in the pressures
on the currency ( perhaps due to the upcoming football event). There is more
stability but don’t rule out another rate change.
May to June sees significant trade in debt, but the overall
picture is very positive for the currency and it may well rise, even a bit too
much.
July and August see a
return to more tricky conditions perhaps as people start to be more objective
again about the fundamentals. There is evidence of large funds flows at this
time.
September is a great month, when there can be lots of
support for the Real and is likely to see the beginning of a longer term
turning point in sentiment.
The nature of the sentiment of this turning point becomes
clearer in October and November. There may be some tinkering with rates again
in October, but this might be in response to
more interest in the currency so might be rate drops rather than rises.
There may be a lot going on globally in terms of currencies
by the end of the year and December sees the a sudden adjustment to the new
conditions but this is accompanied by a sense of stability in the Real so it
isn’t likely to be one of the problem areas.
2015
Early 2015 starts with an excess of optimism. For the most
part there is a belief that things are going to get much better. Some of this
is illusionary though. There is also a risk of flood related problems and
inflationary concerns haven’t evaporated. The situation for the leadership is
mixed. There are attempts to improve the economy but there are also unsettling
groups trying to undermine this.
April and May are mixed but there is still a sense of
unexpectedly positive sentiment. Economically assets are worth more than
expected.
I’d guess that Brazil is becoming a more popular destination
following the 2014 World cup and in the light of the 2016 Olympics.
June to August sees these themes continue although there are
some restrictions on free speech. Overall though there is still a sense of
managed purpose and definite optimism about the statistics. The effect of
external partnerships and relations becomes even more positive.
By August however there are some feelings of doubt about the
direction of travel of the government. These could lead to some short term
unsettled events.
The mood of resistance continues into September. There seems
to be a two tier situation. With slow transformation and inflationary concerns
are reignited. There is a sense of over -exuberance and perhaps overspending
that could create problems later. It might look like a dangerous boom.
In fact the mood is going to change. And this will probably
start to become apparent around October as a more than 25 year period of glitz
and spending may be coming to an end.
There is a new sense of caution and curiously this benefits
the leadership.
November and December see the start of a new 2 or 3 year
period. While there is a continued focus
on gradual transformation by the government, the people seem more concerned
with new and exciting technology and growth. They need reigning in a bit for
financial security.
2015 Real
Conditions continue to change in early 2015. It is a whole new world for the Real.
There are major global debt issues to be addressed, which
might require some adjustment of the value of the currency now.
I’m still feeling that the ‘problems’ lie elsewhere though
and that the Real itself is holding its own.
The period March to May sees the themes of the months since
September 2014 come to a head. The situation is mixed but once again the
balance seems to be on the side of support for the Real.
Nevertheless it is a time when inflation must be monitored
and when there might be temporary restrictions on trade and discontinuities of
value.
Thus we go into the period June to September with a changed
environment.
There are, however, still debt rebalancing issues to be
dealt with and some rapid volatility caused by speculative activity.
The latter part of the period in particular seems to be
characterised by a lot of micro-management issues that will affect trade.
Interestingly there may be a return to interest rate
considerations in October but I suspect that the discussions will stop short of
action as the balance of investment seems to be supportive of the Real at this
time.
Indeed by the end of November there is evidence of
overenthusiasm for the currency.
2015 ends with more global rebalancing yet with the Real
being relatively stable in the face of external shifts. However the situation
may not be sustainable as there is too much uncertainty surrounding the future.
2016
2016 might be a more tricky year, there are suggestions of
some difficulties with conflicting views, over promising and a focus on security matters
January and February see once again some of the early year
illusion that seems to repeat over this whole period. There are positive
economic boosts to be had but the leadership is actually under some pressure.
March and April then sees another stage in the gradually
changing picture of Brazil as it becomes more opinionated and seeks to lead on
the world stage. Of course much of the focus will be on the upcoming Olympics
but this is likely to be the beginning of a much longer trend.
These 2 months are relatively good and the leadership is
once again looking less challenged.
May and June, however, probably see some pre event worries
as the picture is more mixed economically and politically.
July and August see
the people embracing the event, even though there may be some tricky crowd
issues to deal with and the economic benefits might be over estimated. Security
will obviously be a focus and does need to be watched closely as there are
clear risks during this year.
September sees some quite explosive energies in play, these
may well be focussed on the financial arena though with debt issues a clear
challenge.
The government will be trying to get its long term agenda
back on track after all the excitement though.
October may be even more interesting, with financial matters
to the forefront and a brief boom phase with inflationary risks and a population
that are generally pleased with their leadership.
November and December are slightly less intense but there is
still a focus on asset values and market freedoms. It is challenging though for
the government to keep things under control when there seem to be some many
opportunities.
2016- Real
January and February 2016 see little direction of trend as
the currency swings both ways as
inflationary pressures are constrained by restrictions on some deals.
From March to June, there is both a return to positive
sentiment and some challenges. On the
one hand there is an increased risk of inflation and debasement and on the
other sudden significant rapid trades might create some instability and this
might lead to trading restrictions at the end of the period. No doubt the
upcoming Olympics are creating this split financial personality.
Although these conditions continue through the next few
months , there is also renewed freedom, so some restrictions are lifted and
there is also a broadly positive outlook for the currency.
September sees a likely change to the format nature
or look and feel of the currency.
But otherwise it just sees a continuation of the sentiment
of the year and rather more foreign exchange trading than before.
There is still a risk of inflationary conditions in October
and November
But there is also a likely co-operation currency -wise with
other nations by then. A basket approach might have been introduced. Or there
may be other new backing in terms of assets and reserves.
The situation is not particular stable at this time although
this is not necessarily indicative of the longer term trend. Watch out again
for some more restrictions on free trading.
At the end of 2016 the currency is poised for 2017 and there
might be spurts of trading but it shows little trend in either direction and is
waiting to see what the new year will bring,
Given that it represented my
worst forecasting results from 2008-12, I’ve slightly changed the chart
on which I base my Brazil forecasts. It is now set for 16.25 instead of 16.47.
This was rectified on the basis of the principles underlying the adoption of
the Brazil flag in 1889
Already I am happier with it. It seems to portray conditions from 2008-12 better and
particularly the leadership switch from Lula to Roussef.
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