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Brazil Stocks, Currency Tumble After Fitch Downgrade To Junk
It was just last Thursday when we previewed what we said would likely be further downgrades for Brazil on the heels of S&P's move to cut the country to junk in September.
Here's what we said:
On the heels of the S&P move, the political “dynamics” have become less favorable despite some observers’ contention that the further we move down the road to a Rousseff impeachment, the happier the market will be given her track record. House Speaker Eduardo Cunha faces an investigation by the ethics committee in connection with his alleged role in the Carwash scandal while the relationship between Rousseff and VP Michel Temer looks increasingly tenuous. Meanwhile, the arrest of Delcidio Amaral seemed to have ushered in a new era wherein sitting lawmakers aren’t above the law and may be too busy looking over their shoulders going forward to legislate. All of this casts considerable doubt on the country’s ability to overcome fractious politics on the way to adopting some semblance of fiscal rectitude.
As for “economic turmoil,” well, Brazil has effectively descended into a depression since S&P’s downgrade. GDP is collapsing, inflation is sitting at 10.5%, a 12-year high, and unemployment is soaring. Everything that could possibly go wrong economically is going wrong and thanks to rising prices and the incipient threat of lagged FX pass through, Copom is powerless to adopt counter-cyclical policies and will in fact be forced to hike in January.
We then proceeded to go agency by agency courtesy of four graphics from Credit Suisse. Here's the visual for Fitch:
Sure enough, just moments ago, the ratings agency cut Brazil to junk. Here's the bullet point summary:
- FITCH SAYS BRAZIL GENL GOVT DEBT TO INCREASE FURTHER IN 2017
- FITCH: BRAZIL GENL GOVT DEBT TO REACH OVER 70% GDP IN 2016
- FITCH DOWNGRADES BRAZIL TO 'BB+'; OUTLOOK NEGATIVE
- BRAZIL CUT TO BB+ FROM BBB- BY FITCH
- FITCH SAYS BRAZIL'S ECONOMIC SLUMP ISN'T ABATING
- FITCH NOW SEES BRAZIL'S GROWTH OF -3.7% IN '15
- FITCH NOW SEES BRAZIL'S GROWTH OF -2.5% '16
- FITCH SEES BRAZIL GENERAL GOVT FISCAL DEFICIT OVER 10% GDP '15
- FITCH: BRAZIL GENL GOVT FISCAL DEFICIT AVG OVER 7% GDP '16-'17
The reaction in the beleaguered BRL:
And as for stocks, well, we're looking at 2009 lows.
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Full text
Fitch Downgrades Brazil to 'BB+'; Outlook Negative
Fitch Ratings-New York-16 December 2015: Fitch Ratings has downgraded Brazil's ratings as follows:
--Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'BB+' from 'BBB-', Outlook remains Negative;
--Senior unsecured foreign and local currency bonds to 'BB+' from 'BBB-';
--Country Ceiling to 'BBB-' from 'BBB';
--Short-term foreign currency IDR to 'B' from 'F3'.
KEY RATING DRIVERS
Brazil's downgrade reflects the economy's deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government's capacity to effectively implement fiscal measures to stabilize the growing debt burden. The Negative Outlook highlights continued uncertainty and downside risks related to economic, fiscal and political developments. The deteriorating domestic backdrop is increasing challenges for the authorities to take timely corrective policy actions to support confidence and improve prospects for growth, fiscal consolidation and debt stabilization.
Brazil's economic slump is not abating as highlighted by the third quarter of 2015 (3Q15) GDP figures with both consumption and investment retreating. The economy contracted by 1.7% (quarter-over-quarter [QOQ]) and 4.5% (year-over-year [YOY]) in 3Q15. Fitch now forecasts growth of -3.7% and -2.5% in 2015 and 2016, respectively with risks skewed mainly to the downside. Increased unemployment rates, constrained credit, depressed confidence and high inflation are weighing on consumption while political and policy uncertainties, the construction sector malaise and negative spill overs from the Petrobras corruption investigations and capex cuts have hurt investment. The external environment remains difficult for Brazil with the slide in commodity prices, China's slowdown and tightening international financial conditions.
Fiscal deterioration continues against the backdrop of weaker economic conditions. In December, the government secured congressional approval for a 2% of GDP primary deficit ceiling for 2015, reflecting the adverse revenue performance, constrained ability to cut spending and potential one-time payments(of around 1% of GDP). The repeated changes in fiscal targets have undermined the credibility of fiscal policy. The weaker starting point of fiscal accounts, deeper-than- previously projected economic contraction in 2016 and increased political uncertainty in recent weeks cast further doubt on the ability of the government to secure timely legislative approval to meet its primary surplus target for 2016. Moreover, the passage of measures to structurally improve the outlook for public finances and enhance the credibility of medium term fiscal consolidation appears difficult in the current political environment.
Consequently, Fitch's baseline fiscal projections have deteriorated, with the agency forecasting the general government fiscal deficit to reach over 10% of GDP in 2015 and remain elevated, averaging over 7% of GDP during 2016-2017. The high deficit in 2015 is also due to higher interest payments, partly reflecting the losses on FX swaps offered by the central bank. Higher fiscal deficits coupled with deeper economic contraction is leading to a faster growth in the government debt burden than previously expected, with Fitch forecasting general government debt to reach over 70% of GDP in 2016 and increasing further in 2017.
These ratios are significantly higher than both the 'BBB' (43% of GDP) and 'BB' (44.4% of GDP) medians.
The recent start of impeachment proceedings against President Rousseff is adding uncertainty to an already difficult political environment and leading to continued political stalemate. The outcome of the proceedings is uncertain. Fitch believes that they would detract from timely and effective implementation of corrective fiscal adjustments. The political landscape has already been contaminated by the growing reach of the Petrobras investigations, often strained relationship of the government with its congressional allies and reduced popularity of the president. Higher unemployment rates and a deepening economic slump could lead to additional political and governance challenges in the coming year.
The reduction in some macro imbalances is continuing. The economic slump and BRL depreciation have facilitated a 36% reduction in the current account deficit in nominal USD terms during January-October compared to the same period of last year. Further reduction in the current account deficit is expected during the forecast period, which could mitigate risks related to potential tighter external financing conditions. On the other hand, inflation remains high at 10.5%, and inflation expectations, after inching downwards have reversed course and have begun to increase for 2016 and 2017, remaining above the 4.5% inflation target.
Brazil's 'BB+' ratings are supported by its economic diversity and entrenched civil institutions, with its per capita income and governance indicators better than the 'BB' median. The country's shock absorption capacity is boosted by its flexible exchange rate, robust international reserves, a strong net sovereign external creditor position, deep and developed domestic government debt capital markets, and an adequately capitalized banking system. The share of foreign currency debt in total general government debt remains low and prudent liability management has reduced interest rate and refinancing risks. In addition, the government has shown some capacity to respond in difficult conditions by implementing relative price adjustments, tightening monetary policy amidst a deepening recession and reining in quasi-fiscal stimulus.
RATING SENSITIVITIES
The main factors that could lead to a downgrade are:
--Failure to arrest the pace of increase in the government debt burden. Crystallization of material contingent liabilities would also be negative.
--A deeper and more prolonged recession which further undermines government debt dynamics and stokes political and social instability.
--Erosion of international reserves and deterioration in government debt composition.
The Rating Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a positive rating change. Future developments that could individually, or collectively, result in a stabilization of the Outlook include:
--An improvement in the political environment that is conducive to improved policy implementation and supports confidence, growth and reform prospects.
--Fiscal consolidation that leads to greater confidence in the capacity of the government to achieve debt stabilization.
--Improved investment and growth environment and a reduction in macroeconomic imbalances.
KEY ASSUMPTIONS
--Fitch assumes that China (an important trading partner for Brazil) will avoid a hard-landing and be able to manage a gradual slowdown, thus providing limited upside for commodity prices. Argentina's economic performance (key destination of manufacturing exports) is likely to remain subdued over the forecast period.
--Fitch assumes that Brazil maintains international and domestic market access even if there is return of higher international financial volatility and further domestic confidence shocks.
--Fitch assumes that broader banking sector stability remains sound and the spill-overs from the recent difficulties in BTG Pactual are contained.
--Fitch assumes that political uncertainty will continue to hamper progress on the government's legislative agenda.
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BZQ for the win...
But, but, but, but...Olympics!!!! Olympics, everybody! Olympics!!!
Surely Fitch knows that Olympics means everything is awesome, right???
now that they have fucked over the BRIC countries, I keep hearing commercials on asswipe Bloombergs radio station about AFRICA. The one country GOLDMAN ET AL haven't indebted and royally fucked over yet
So africa is a country now huh?
So is Europe:
https://www.youtube.com/watch?v=7SkN1h5fJKM
… Suppose they gave an Olympics and nobody came?
This is going to be a hilarious show.
EurGold are selling all of their 1oz silver coins for just €12!
These include:
1oz Silver Vienna Philharmonic 2015.
1oz Silver American Eagle 2015.
1oz Silver Canadian Maple Leaf 2015.
1oz Silver Perth Mint Kookaburra 2015.
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Silver 1oz Vienna Philharmonic 2015 Master Box (500pcs) - €7,859.69.
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Silver 1oz American Eagle 2015 Master Box (500pcs) - €7,949.17.
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Silver 1oz Canadian Maple Leaf 2015 Master Box (500pcs) - €7,775.52.
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All major credit cards accepted. Sale ends 31st December 2015.
At this morning's exchange rate, 12 Euro's is $18 US.
Can't speak for Europeans, but you can currently get silver much cheaper than $18/ounce in the USA:
https://comparesilverprices.com/
Philharmonics: $16.34
Maple Leaves: $16.70
American Eagles: $17.34
BZQ don't care.
The start of many other junk down-grades....Just the beginning for many countries 2016. happy new year...
and EEM is up about a percent on the news......
the corruption is still AAA
My QOQ is contracting following a recent Brazilian on my junk.
How do the prices of Rio hookers compare to their 'sisters' in Athens?
The latter charge 4 EUR/hr. How do they compare in the "Race to the bottom"? (pun intended)
As long as we have Central Banks, American/British hegemony and the righteous ratings agencies, "political instability" is fait accompli, no?
These olympics will be epic.
Lots of 'Junk' out there in the financial markets! You wonder how things remain even remotely stable.
Oh well, I wonder if the Olymoics will go off? Athletes living in un-airconditioned dorms and swimming in sewage. Welcome to the 3rd world Olymics.
Don't worry, the olympics have become a massive orgy of ego anyway.
http://www.thedailybeast.com/articles/2014/02/14/sochi-athletes-get-it-o...
International diseases rape!
let's get real, the real never was worth two bits to begin with and the decline hasn't been that bad. turkey, brazil, etc., have a long way to fall imo.
fitch, maybe we'll downgrade next year... awesome work again guyz!
http://www.xe.com/currencycharts/?from=XAU&to=BRL&view=10Y
I always get a boner looking at brazilian goldcharts.
The 'Black Junk'
http://bit.ly/1O5Tduj
Wake me up when they do a serious downgrade of our own broke ass government.
I agree that the corruption is still AAA - a tragedy for ordinary Brazilians.
But I also think there is a type of banking conspiracy at work here - the prognoses of DOOM, followed by the rapid downgrades ... all the while the major banks are making profits from Credit Default Swaps on Brazil.
Don't tell me that the global economy isn't putrid. I know a bad smell when it goes up my nose.
YES, Brazil will probably have a full economic Depression. By the way - this is the LAST country on Earth with a major forest that is untouched. The Amazon. OK, not exactly untouched, and definitely in trouble. But that OXYGEN that you are breathing every day ... some of it comes from that plant life in the Amazon. Go figure.
A lot of products are made in Brazil. For example, the printer paper that you use in your laser printer. Comes from eucalytpus trees in Brazil. So let me ask you this. If the Brazilian currency has dropped like a rock - then WHY hasn't the cost of your paper also dropped. It certainly looks like someone is making a handsome profit from this situation.
One man's junk is another man's treasure. Right?
Indeed. my thoughts exactly. this is a treasure trove for me.
Proof of team vagina's success in politics.
This is also, further evidence that women should control everything.
There is nothing a woman cannot fuck up. If she hasn't yet.....give her time.
And carly fioroia's and hillary clintons weren't made in a day, by a village, either.
And otherwise the men are doing a great job of running things, right?
Being male doesn't make you a MAN, anymore than having a vagina makes you a LADY.
I don't see any MEN in charge of any city or state in the us. Nor any at the national level.
MEN know what natural rights are. Lefties, cucks, and women abhor reality.
'Merica is full of nothing but sellouts to bankers and organized ko$her criminals.
Been that way since 1865, 'merica has. A pansy assed jewish run nightmare.
And the women of this country collectively would rather kill all the white men off or enslave then and have sex and babies with third worlder invaders.
@teamvagina
@fullvagina
@breastcancer
@feministvictimclass
You have natural rights confused with anarchy.
You forgot to add
@buriedachild
@startedassecretary
@beencalledeverybword
Overgeneralizations applied to all because of the few.
Sounds to me like someone just got dumped by one of them vagina wimmin.
Right befor Xmas too. ;(
Is Brazlian Pussy getting cheap?
Did you know Rousseff has a seashell tattoo on her left inner thigh ? When you hold your ear next to it, you can smell the sea.
Called it. Spain/France, you're next.
I really do click on this articles to read the news.
Because that horse faced tiolet water drinking Bolshevik retard Dilma is not - I REPEAT NOT - click bait.
When everyone looks small, compared to a measurement ruler that keeps stretching, then it's time to stop using said 'ruler'.
When will the BRICS & EM's complete their de-Dollarization, and trade directly with each other's currencies, and use CIPS instead of SWIFT?
Until they have the clarity and will to do that, their misery will only deepen. Dumbass politicians, being deceived and manipulated by Central Banksters of Rottenchild & Sons.
Fitch - and the other agencies - are brilliant. They breathlessly report what everyone realized weeks ago.
The IOC needs to be investigated for awarding the 2016 olympics to Rio.
I wish our bonds would get downgraded. Think of all the runaway inflation it would cause. /jizzinpants
So Brazil has problems:
- Sovereign debt downgraded to junk status.
- Petrobrás scandal (lava jato (carwash)) getting deeper.
- Economy collapsed all over the floor.
- Inflation rising at 10% plus-plus: stagflation.
- $Real collapsing on FX.
- Impeachment hearings on Rousseff going ahead.
Carnaval time is on its way...