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Brazil Cut To Junk By S&P, ETF Falls 5% Post-Mkt

Tyler Durden's picture




 

It’s not as if the writing wasn’t on the wall, and don’t say we didn’t warn you. 

Brazil, whose economy officially slid into recession in Q2 - a quarter during which Brazilians suffered through the worst inflation-growth outcome (i.e. stagflation) in over a decade - and whose efforts to plug a yawning budget gap are complicated by political infighting and a growing public outcry against embattled President Dilma Rousseff, has been cut to junk by S&P. 

  • BRAZIL CUT TO JUNK BY S&P; OUTLOOK NEGATIVE

Unsurprisingly, the iShares MSCI Brazil ETF is trading sharply lower AH on the announcement:

 

S&P’s move comes as the country’s finance minister fights for his political life and as deficits on both the current and fiscal accounts paint a bleak picture, especially in the face of persistently low commodity prices, China’s move to devalue the yuan, and the impossible dilemma facing the central bank which, like its “LA-5” counterparts, can’t hike to combat a plunging currency for fear of exacerbating FX pass through inflation and can’t cut to boost the economy for fear of jeopardizing the 2016 4.5% inflation target.

Expect this to get far, far worse before it gets better. Here’s the headline dump: 

  • S&P SEES BRAZIL REAL GDP CONTRACTION OF ABOUT 2.5% THIS YEAR
  • S&P SEES BRAZIL REAL GDP CONTRACTION OF 0.5% IN '16
  • S&P SEES BRAZIL REAL GDP MODEST GROWTH IN 2017
  • BRAZIL GOVT DEFICIT TO RISE TO AVG 8% GDP IN '15, '16, S&P SAYS
  • BRAZIL WON'T HAVE PRIMARY FISCAL SURPLUS IN '15, '16: S&P

Here's a look at the country's twin deficits:

Followed by a more granular look at the Brazilian nightmare:

 

And in the wake of the most recent GDP data and last week's confirmation of the budget blues, here's what Barclays had to say about the economy and the fiscal situation:

We now forecast a 3.2% fall of real GDP in Brazil in 2015, to be followed by a 1.5% contraction the next year. The downside surprise in Q2 and the deeper recession in the second half of this year also imply a negative contribution to next year’s growth. Household consumption should continue contributing negatively to headline growth, together with fixed asset investment. 

 

 

The disappointment with fiscal execution, coupled with the lack of capacity of the government to negotiate structural changes in how expenditures grow, leads us to expect a fiscal primary deficit for this year and next of 0.3% and 0.5% of GDP, respectively. For 2015, the fiscal measures approved in Congress were reduced meaningfully from the original proposal and are contributing with only 0.53% of GDP to the fiscal balance. Even including those, we forecast total real fiscal revenues to fall 3.2%, as the growth slowdown is having the biggest negative contribution on this year’s result.

 

 

The implication is a downgrade in less than one year. We believe the rating agencies will take off the investment grade rating in H1 16, starting likely in April by S&P, given the increased pace of deterioration of the macroeconomic juncture and the disappointment relatively to the agencies’ forecasts. Moody’s could follow suit in the second half of the year, if it becomes clear that the country will fail to achieve real GDP growth and the primary surplus as percentage of GDP near 2%, as the agency expects for 2017. At this point, it is very hard to foresee any meaningful change in the political and/or economic scenario that could avoid such an outcome.

 

Finally, here's S&P with more color:

The negative outlook reflects our view that there is a greater than one–in–three likelihood that we could lower our ratings on Brazil again. We anticiapte that within the next year a downgrade could stem in particular from a further deterioration of Brazil's fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet. A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment. 

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Wed, 09/09/2015 - 18:21 | 6528881 gmak
gmak's picture

Hey! Where are the pictures of pretty, sexy Brazilians?

Wed, 09/09/2015 - 18:23 | 6528896 BiteMeBO
BiteMeBO's picture

They're heading north.

Wed, 09/09/2015 - 18:25 | 6528909 Jumbotron
Jumbotron's picture

They're about to get a Brazilian on top of their Brazilian.

Wed, 09/09/2015 - 18:30 | 6528935 38BWD22
38BWD22's picture

 

 

My friend selling US-made capital equipment to S America for chemical plants & refineries has told me that BRAZIL has been dead for many months.

Chile had also been slow, only Peru and Colombia were doing well.

Today he told me that Peru just froze up...  Our company will respond (buy less) immediately.

This buying less stuff I am seeing all over the world...

Wed, 09/09/2015 - 18:54 | 6529034 Escrava Isaura
Escrava Isaura's picture

 

 

38BWD22

Welcome back.

 

Don't worry. Nobody will find out.

 

Wed, 09/09/2015 - 19:10 | 6529088 38BWD22
38BWD22's picture

 

 

shh...

Wed, 09/09/2015 - 18:27 | 6528920 max2205
max2205's picture

Shale is in much better shape 

Wed, 09/09/2015 - 18:56 | 6529040 Escrava Isaura
Escrava Isaura's picture

 

 

I beg your pardon?

 

Wed, 09/09/2015 - 22:48 | 6529782 StarSoul
StarSoul's picture

President Dilma Rousseff is German. All pretty brazillian girls are German like Gisele Budchen...90% of Brazil economy is controlled by Germans....Google it...german immigration in Brazil during world wars.

 


Thu, 09/10/2015 - 05:31 | 6530372 Rodders75
Rodders75's picture

Actually she's Bulgarian

Wed, 09/09/2015 - 18:22 | 6528888 q99x2
q99x2's picture

Something doesn't seem right. Rate hikes, lowering ratings on BRICS and proxy wars with Russia. They all may have something in common.

Wed, 09/09/2015 - 18:22 | 6528890 phoolish
phoolish's picture

Major Banster Attack on a Weak BRICS Link - and only one in this hemisphere.

Wed, 09/09/2015 - 18:25 | 6528907 offwirenews
offwirenews's picture

i think the title should have read..."U.S. Orders S&P to Downgrade Brazil"

Wed, 09/09/2015 - 18:42 | 6528979 Tsar Pointless
Tsar Pointless's picture

They omitted that part.

Wed, 09/09/2015 - 18:26 | 6528912 Bernoulli
Bernoulli's picture

But.. but.. but...

BRICS!?!?

What a mess!

South Africa is in the best shape of the five, is it?

Wed, 09/09/2015 - 18:29 | 6528928 phoolish
phoolish's picture

Only when measured in dollars.  If I don't plan to trade in dollars, what do I care what the "value" of my currency viz dollars is?  I don't.

Wed, 09/09/2015 - 20:19 | 6529268 nosam
nosam's picture

India is in pretty good shape considering everything thats going on.

Wed, 09/09/2015 - 18:29 | 6528931 Chuck Knoblauch
Chuck Knoblauch's picture

US Treasury due for ANOTHER cut too.

Wed, 09/09/2015 - 18:31 | 6528939 nmewn
nmewn's picture

The 2016 Olympics will fix it all...lmao!

Wed, 09/09/2015 - 19:04 | 6529068 Escrava Isaura
Escrava Isaura's picture

 

 

Unlikely it will make till them.

 

Dave Cohen (DOTE): I believe China's phenomenal growth story is truly dead. I used to write posts about China's comeuppance, but got tired of waiting for it. It's impossible to time this stuff. Even now I'm going out on a limb.

So I believe a global minsky moment has arrived.

 

Wed, 09/09/2015 - 18:31 | 6528940 Budnacho
Budnacho's picture

Gonna be an interesting olympics....

Wed, 09/09/2015 - 18:41 | 6528975 FedFunnyMoney
FedFunnyMoney's picture

There won't be a 2016 Olympics, IMO. It will be for the same reason we didn't have them in 1916, 1940 and 1944.

Wed, 09/09/2015 - 18:37 | 6528958 Chuck Knoblauch
Chuck Knoblauch's picture

US always thinks their shit smells better.

Wed, 09/09/2015 - 20:55 | 6529374 tarabel
tarabel's picture

 

 

Well, I'm not a globe-trotting connoisseur of feces odors so I have no idea whose shit don't stink.

But we do have a pretty high ratio of indoor plumbing fixtures per head of population, so it might be a matter of simply moving our shit out before it starts to stink like everyone else's does.

Wed, 09/09/2015 - 18:38 | 6528960 PrimalScream
PrimalScream's picture

It's a good call .. but VERY surprised to see S&P move this quickly.

It does make you wonder if someone is strong-arming this ratings change.  Who stands to profit?

Wed, 09/09/2015 - 18:39 | 6528966 buzzsaw99
buzzsaw99's picture

the squid was pushing that bric shit hot and heavy a few years ago. Now everyone who bought will have to shit brics.

Do you see what happens Larry?

Wed, 09/09/2015 - 18:44 | 6528987 Tsar Pointless
Tsar Pointless's picture

It's in retaliation for Brazil beating the USA in football last night.

Wed, 09/09/2015 - 18:45 | 6528989 r3vbr
r3vbr's picture

Come on guys, stop with all the conspiracy theories. This rating change is WELL OVERDUE, I live here in Brazil and we are seeing a dead economy, budget is totally out of control, at least since 2013 Brazil hasnt been investment grade.

Thu, 09/10/2015 - 12:37 | 6531615 FreeMoney
FreeMoney's picture

Amen.  My better half is Brazillian.  Seems like Dilma and the commies are trying to follow Hugo Chavez to the bottom.

Wed, 09/09/2015 - 18:46 | 6528996 gwar5
gwar5's picture

The BRL has already been beat up to decade lows against the USD. What might this bring? Looks like going to Carnival just got cheaper. 

Wed, 09/09/2015 - 18:47 | 6529002 MKD
MKD's picture

anyone know where i can find hot brazilian mail order brides

Wed, 09/09/2015 - 20:48 | 6529347 tarabel
tarabel's picture

 

 

That's what you get for sticking with Compuserve all these years.

Wed, 09/09/2015 - 23:41 | 6529937 38BWD22
38BWD22's picture

 

 

LOL!  Ouch, that had to hurt!

Wed, 09/09/2015 - 19:03 | 6529063 holdbuysell
holdbuysell's picture

The first of many.

Wed, 09/09/2015 - 19:52 | 6529185 crackerjack_finance
crackerjack_finance's picture

ETF falls 7% after-hours now.....

 

 

Wed, 09/09/2015 - 19:59 | 6529208 Salah
Salah's picture

Hey, your dollar there BUYS 5X MORE SEX.....Yahoo!

Wed, 09/09/2015 - 20:01 | 6529212 yogibear
yogibear's picture

The US and Japan keep piling on the debt which they can never pay back.

Wed, 09/09/2015 - 20:51 | 6529364 tarabel
tarabel's picture

 

 

At this point, issuing strips of paper for the tangible goods of the world seems like an excellent recovery plan.

When it all crashes, we've got stuff and they've got Barack Obama's solemn promise to pay them back in 30 years.

Wed, 09/09/2015 - 20:22 | 6529277 TheAntiProgressive
TheAntiProgressive's picture

Yeah but the young womens are still 5 star.

Wed, 09/09/2015 - 23:10 | 6529860 StarSoul
StarSoul's picture

You have been fooled by the Jews....All models in Brazil have German blood...even President Dilma Rousseff is german jew, Gisele Budchen are all German...WAKE UP....

 

90% of south America is controlled by germans...Yes. Nazi's Rule entire America even to this day. 

Wed, 09/09/2015 - 20:50 | 6529359 Nana
Nana's picture

Exchange will be the same as the USA vs Brazil match yest. 4 X 1 ......Biiizzzaaaatchessssss!!!!!! S&P Loves Brazilian COCK!!!!!!! Moody's will follow suit ans swallow a "ginourmous" Brazilian COCK up the ARSE......

Wed, 09/09/2015 - 20:50 | 6529360 Nana
Nana's picture

Exchange will be the same as the USA vs Brazil match yest. 4 X 1 ......Biiizzzaaaatchessssss!!!!!! S&P Loves Brazilian COCK!!!!!!! Moody's will follow suit ans swallow a "ginourmous" Brazilian COCK up the ARSE......

Wed, 09/09/2015 - 21:05 | 6529411 C.A Ahmadine
C.A Ahmadine's picture

I will trade Brazil's fiscal situation for the US situation... and the women too!!

Thu, 09/10/2015 - 01:38 | 6530176 Clowns on Acid
Clowns on Acid's picture

Mass migration north ..... sign up for ObamaCare, Obamaphone, etc... they know how to do it....

Thu, 09/10/2015 - 01:40 | 6530183 Clowns on Acid
Clowns on Acid's picture

Middle class in the US say "Je suis Brazil"

 

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