Up 8% in premarket :)
Brazil Signals Key Rate Increases Nearing End as Growth Slows
New Home Owners Aided by Rousseff Buoy Her Re-Election
Fears of energy rationing sent the electricity sector tumbling yesterday. Brazilian traders apparently picked yesterday to panic about a housing bubble also (LOL).
"18 ações caem mais de 5% no Ibovespa; elétricas e imobiliárias renovam mínimas - InfoMoney"
What are the implications of this? I'm not very familiar with how such a move would benefit GFA holders.
Does this signal their intent to sell Tenda?
Yep, that's definitely a bottom.
The VIX future spreads are back to normal contango routine.
Brazil market way up after a blackout scare the past couple of days.
The local shares bounced at R$2.81 yesterday and the ADR hit US $2.38. I think we move sideways from here.
Here's what I posted last Friday:
"$2.40-2.46 on the ADR. Followed by $2.24 and $2.07.
R$2.80-2.87 on the local is the next level to watch.
An ADR touch of $2.40-2-46 on good volume would likely trigger a reversal (or at least a strong bounce)."
"Brazilian bank Itau Unibanco Holding SA (ITUB4.BR) said Tuesday that it expects its total outstanding loans to rise up to 13% in 2014, the same pace as last year, and plans to spend less on provisions with default rates at low levels.
The bank ended 2013 with 483.4 billion reais ($198 billion) in outstanding loans, up 13.3% from 426.6 billion reais in 2012. "
"Aco, isn't a lot of this just across the board EM pullback? (the bots)"
The EM pullback incorporates selling from a lot more than just the quant funds - HFs, retail, and MF managers are doubtless contributing as well.
I think the quants (bots) are much more integral in determining the ADR pricing, including the 2-4pm boost we get after the BVSP closes and the FV divergences we have seen occuring with increasing frequency. I suspect the motivation for this activity is lanticipation of where the FX move will go overnight and creating opportunities to sell daytrading positions in the black. I have very little doubt the quants are also programmed to act on key technical levels.
Of course you have to factor in FX. Its all playing black or red when it boils down to it. Each resistance or support point is breakable, but they do offer a roadmap for where and when to buy and sell. Being 100% spot on about a fundamental read (earnings, valuation metrics, etc) but still watch a stock underperform for years for no apparent reason or due to seemingly unrelated matters.
As you have seen, the ADR goes off fair value very frequently and technicals on the ADR seem to work pretty well on balance - probably because thats how the bots are programmed to read it.
"Clearly, one of these two countries has the wrong interest rate policy, and I'd say it's Brazil."
Brazil was wrong to ever bring it down from 12% to 7.25% in the first place in the face of inflation above the official target (even if it was in the allowable range). It was even more wrong to direct so many resources at fueling the housing market boom and dramatically increasing access to cheap credit. The construction boom drove competition with the booming commodity sector for affordable skilled labor at the peak of the cycle. This has been the real driver behind Brazil's inflation problem, IMO, along with the rapid growth of the "middle" class and the soy and cane demand, which has monopolized cropland - thereby driving up the price of food staples. Remember how expensive tomatoes were a couple of years ago?
As for the currency situation, the BRL is subject to the current pressures on EM currencies which is underpinned by widespread inflation in the BRICs, the peaking commodity cycle, and Fed tapering fears. Higher interest rates are needed not only to stem the inflation problem but also to draw in reserves by attracting buyers to Brazilian government bonds.
Mexico doesn't have the same currency issues to contend with because of its broader access to and tighter commercial relationship with the US has driven growth in the manufacturing sector, providing more shelter from the commodity cycle trap.
"What Brazil really needs is increasing productivity through more investments in public infrastructure and the private sector, to compensate for rising labor costs as a result of full employment, while controlling private consumption."
Mostly agree, but I think its more a political problem than access to capital. Access to easy credt will not encourage infrastructure building as long as there is lingering fear that the government could step in any day with industry-destroying price controls - esp in the electric energy and oil sectors.
Fair value is $2.49. An ADR touch of $2.40-2-46 on good volume would likely trigger a reversal (or at least a strong bounce).