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No Visibility on Brazil Yet
As before, we still have more questions than answers on the fiscal front, including the sustainability of the recent sharp expenditure compression and what's happening on budgetary financing.
And thus no clear path to reversal of the Copom tightening cycle (which has been completely about the budget), leaving nominal and real rates at 20-year highs and a massive gap between rates and growth.
Meanwhile, the macro picture is moderate. Real growth is "kicking around" the 3% y/y range for now but likely to come down this year given the unprecedented central bank stance. And while inflation is picking up in the near term, this is mostly due to passthrough from earlier BRL weakness; we don't see strong underlying price pressures in the system.
In terms of asset markets, we are heavily positioned in front-end BRL carry, on the sidelines with regard to equities and negative on sovereign dollar debt.
No Visibility on Brazil Yet (PDF)
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