Lady Gaga wears Schultz, posts on Instagram and helps the brand in US expansion

A free endorsement of Lady Gaga is a great way to start a foray into the US market even though it seems that the retail landscape could turn into a kind of desert.

The singer and fashion icon posted on Instagram on Saturday (9) photos of her posing in Dallas with a pair of Schutz high-heeled leather shoes. Facing a fashion emergency considering Gaga’s nearly 27 million followers, Brazil’s Arezzo Indústria e Comércio, owner of the Schutz brand, quickly filled a plane and shipped it to the US.

We will send “whatever it takes,” Daniel Levy, chief financial officer of Arezzo & Co, said in an interview at Bloomberg’s Sao Paulo office.

He also quoted Kate Middleton and Gigi Hadid as fans of Schutz. “We did not pay.” A post like Lady Gaga’s, he said, “would be worth $ 100,000.”

The timing could not be better for Arezzo & Co, who has a staff of 25 people in New York and is about to open its first two Schutz stores, probably on the East Coast in 2018.

It’s a bold move at a time when other retailers are closing dozens of stores – Michael Kors could close as much as 125 – and rivals like Kate Spade are being devoured. In addition, this year’s forecast for US retail sales was reduced by the National Retail Federation after the country’s Census Bureau changed personal income and consumer values.

However, Schutz is confident that this is the right time and place to make a bet.

“We are financially sound. We are a strong cash generator and we have an extremely efficient working capital structure”, said Levy.

The Schutz brand is already sold at Nordstrom and at multi-brand stores in Beverly Hills and New York. Next year, Arezzo & Co will open at least two stores on the East Coast, possibly at the Short Hills mall in New Jersey and the Aventura Mall in Florida. If these stores perform well, Arezzo will redouble its commitment in 2019. According to Levy, the brand is better than Steve Madden and cheaper than Stuart Weitzman.

Economists reduce Brazil inflation forecast for 2017 and the next 12 months

Market economists reduced their estimate for inflation by the Broad Consumer Price Index (IPCA) in 2017 and in the next 12 months, according to the average forecast in the Focus Bulletin, released on Monday by the Central Bank (BC) .

For this year, inflation bets were reduced from 3.03% to 2.88%, below the floor of the target for the calendar, of 3%. The center of the inflation target is 4.5%. In 12 months, the projection for the advance of prices increased from 3.96% to 3.91%. For 2018, the estimate was maintained at 4.02%.

Last Friday, the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA slowed the rise to 0.28% in November, after rising 0.42% a month earlier.

The average estimate for economic growth had a new round of upward adjustments after the IBGE revised positively the Gross Domestic Product (GDP) figures for the first and second quarters of this year. Thus, the projections went from expansion of 0.89% to 0.91% in 2017 and advance from 2.60% to 2.62% in 2018.

For the basic interest rate, Selic, at the end of 2018, the projections were maintained at 7%

IPCA inflation index slows down in November, according to IBGE

Inflation measured by the National Extended Consumer Price Index (IPCA) slowed to 0.28% in November, from 0.42% in October, the Brazilian Institute of Geography and Statistics (IBGE) reported Friday.

In the same month of 2016, the increase had been of 0.18%. Therefore, official accumulated inflation accelerated in 12 months: from 2.70% in October to 2.80% in November, according to the institute.

The IPCA in November was below the average of 0.35% estimated by 27 consultancies and financial institutions. The range of projections was from 0.31% to 0.47%. For the accumulated 12-month period, the expectation was of an increase of 2.88% in the prices

In the 11 full months of the year, the IPCA accumulated a rise of 2.50%, the lowest inflation for the period since 1998 (1.32%). Thus, with just one month remaining in 2017, inflation is below the target floor of 3% – the center is 4.5%, with a margin of 1.5 percentage points up or down.

Brazilian stocks and Real fall amid difficulty in approving pension plan reform

Brazilian financial market reacts negatively again to the noise surrounding the pension reform. According to professionals, this morning’s news brought more negative elements about the possibilities of the government being able to approve the reform, which was reflected in the dollar, interest rate hikes and in the fall of the Ibovespa stock index at the opening of the trading session.

But, half an hour after business started, prices have worsened, reacting to comments from House of Representatives president, Rodrigo Maia, that would have expressed a more pessimistic reading regarding the number of votes to approve the reform.

This market behavior confirms the investors’ sensitivity to the pension plan reform news, something that has already been happening in the last sessions and that intensifies as the deadline for voting approaches.

The importance of this reform for the Brazilian stock, currency and interest markets has already been explained in this article from June in this blog.

Petrobras to raise up to US$ 2.3 Billion in IPO of it’s distribution subsidiary

BR Distribuidora, distribution arm of Petrobras (PBR), started yesterday the process that should be the largest IPO since 2013 in Brazil. With the sale of a maximum of 33.75% of its stake in BR, the parent company Petrobras may raise up to R$ 7.5 billion (US$ 2.3 Bi), an important figure for its divestment plan. This estimate takes into account the placement of all lots for sale and the ceiling of the indicative range of price per share, which ranges from R$ 15 to R$ 19, according to the prospectus released yesterday. In the pessimistic scenario, Petrobras would raise R$ 4.4 billion by selling 25% of the shares.

Considering the stock price range disclosed, BR should arrive on the stock exchange on December 15th , with a market cap between R$ 17.5 billion and R$ 22.1 billion (US$ 5.4 bi and 6.7 bi). Despite the expressive absolute valuation, it has a discount ranging from 26% to 40% against the trading multiples of one of its main competitors, Ultrapar, owner of the Ipiranga distribution network.

According to market sources, what explains the discount is the fact that, despite the governance safeguards included in its statute – such as the requirement that half of the directors be independent – the company will remain a state-owned company and, therefore, subject to political interference.

The perception in the market is that BR’s offer will not have demand issues. The question will be the price, to be officially set on December 13. While local managers will bargain discount, but should stay out, foreign investors have already given signs of interest. Because of the discount size offered relative to its peers, BR expects to attract enough demand to close the price between the middle and the ceiling of the range.

Adding the expected market cap range to the net debt of R$ 3.86 billion in September, BR should have company valuation between R$ 21.3 billion and R$ 26 billion. This concept of company valuation assumes that the company’s future cash flow will be shared between its shareholders and creditors.

When dividing this amount by BR’s adjusted profit before interest, taxes, depreciation and amortization (Ebitda) in the last 12 months, which was R$ 3 billion, one arrives in multiples of 7.1 times in the floor of the prices per share, 7.9 times at the midpoint and 8.7 times at the peak.

On yesterday’s trading session, Ultrapar’s shares traded at a multiple of 11.8 times its Ebitda in the last 12 months, hence the discount. Ipiranga represents 75% of the consolidated Ebitda of Ultrapar, which is a holding company.

Fitch keeps the Brazilian credit rating at BB, with negative outlook

Fitch Ratings reinforced Brazil’s credit rating on ‘BB’, with a negative outlook. That is, with the possibility of the classification being revised downwards in the future.According to the agency, the country’s ratings is limited by the structural weaknesses in public finances and high government debt, weak growth prospects and weaker governance indicators than the country’s peers, in addition to the recent history of political instability.

These weaknesses, Fitch added, are offset by the economic diversity of Brazil and consolidated civil institutions.

The negative outlook reflects the continuity of uncertainties related to the sustainability and strength of the Brazilian economic recovery, the prospects for medium-term debt stabilization and the progress of the legislative agenda, especially the pension reform.

Fitch expects a modest cyclical recovery in Brazil, with growth accelerating from 0.6% in 2017 to an average of 2.6% during 2018 and 2019. Consumption began to recover, sustained by lower inflation, which drives wage gains, stabilization of the unemployment rate and a recovery of consumer credit. A recovery in investment is also expected in the coming years.

According to the agency, the risks that can cause the government not to reach its fiscal goals in the short term include a weaker economic recovery and the difficulty in cutting public spending, especially in the election year. The implementation of the pension Reform and other adjustments will be necessary to ensure that expenditures meet the target in the medium term.

Fitch projects that Brazilian public debt will continue to grow during the forecasted period, even taking into account the impact of the National Treasury’s loan payments anticipated by the National Development Bank (BNDES) between 2017 and 2018. The agency projects that debt will reach 76% of GDP in 2017 (above the median of the “BB” countries, 45%) and advance to 80% in 2018.

Brazil’s current account deficit is expected to fall below 1% in 2017, according to Fitch projections, and should remain below 2% in the period projected by the agency. The deficit fell 80% during the first nine months of 2017, compared to last year, with the growth of the trade surplus.

Funding of Brazilian companies with debt and equity jumps to R$ 192 billion (US$ 60 bi)

The wind begins to shift to the capital market in the wake of falling interest rates to near historic lows and the contraction of bank credit after two years of deep recession. Since last year, the favorable environment has opened space and consolidates a trend of strong growth for corporate debt issues, along with capital openings and subsequent stock offers, which increasingly assume a major role as a source of financing for large companies .
Between January and September, data from the Brazilian Association of Financial and Capital Market Entities (Anbima) shows that the issuance of fixed income securities in Brazil and abroad by companies plus funding through variable income in the country reached R$ 176.3 billion, or three and a half times the volume of R$ 49.9 billion granted by BNDES in the same period, according to figures from the state bank itself.

For Sergio Goldstein, chairman of Anbima’s corporate finance committee, the expansion is expected to continue in 2018: “the economy probably accelerates next year and thus there’s no way the capital market does not come along.”

A singularly favorable situation fuels this movement of greater participation of the capital market as a source of funds: falling interest rates and prospects that it will remain close to historical lows for a prolonged period, low inflation, growth, albeit gradual, and a change in the policy of subsidized rates by the BNDES.

Unilever buys Brazilian brand of natural foods

Unilever announced this Monday (2) the acquisition of Brazilian brand Mãe Terra. The company specializes in natural and organic produce and was established in 1979. The acquisition cost was not disclosed. 

Mãe Terra, which produces organig cereals, cookies and other snacks, has been growing 30 YoY and its acquisition is an attempt from the global giant to become relevant in the organic market in Brazil. 

The acquisition is still pending standard  regulatory approvals

Should you buy Brazilian stocks right now?

Brazil is in a very binary situation right now and that’s bringing huge volatility. Brazil’s current crisis is a fiscal one. That’s what caused the huge drop up until 2015. The labor party added a lot to the social networking in its 12 years in power and did not do the reforms the country needs, most notably, the pension plan reform. Pension plan deficit represents already 2.8% of the GDP, without change and with an aging population, this number will be unsustainable in as soon as 5 years. The labor party did have its merits in the beginning by taking a lot of Brazilians out extreme poverty but the lack of political power and will to make the reforms, coupled with huge corruption, erased most of its merits. So, comes 2016 and everything changes? Stock market and currency jumps and interest rates go down. The economy must have improved, right? Wrong! The only thing that improved was the expectation. With the rumors and subsequent consolidation of Dilma’s impeachment, the new president, Temer, who has in congress support what he lacks in popularity, was doing all the necessary reforms to the economy. The GDP has not improved yet, but the perspective is great and the price is right.

Then, comes corruption again and now it implicates Michel Temer. Stocks go down 10% and currency another 7%

Short after, markets start to recover thinking that, with or without Temer, the government base in the congress will be the same and the reforms will happen.

Then the binary dilemma: economy will continue to improve if these reforms pass and that seems to be the scenario both with the current president or with one replaced by the congress. In Brazil, if a president and vice president are impeached after two years in power, the replacement is chosen by the congress until the next election. However, there’s strong popular movement and even a proposed constitutional amendment to do direct elections right now and not wait until 2018. If that happens, you could see the labor party or other extremist come up strong and drop the stock market and currency further.

So, will this “diretas já” movement happen? It’s possible. The country is in big disbelief with the political representatives and not without reason. The curious part is that the direct election is what would be the most harmful to the economy and therefore, the population.

Bottom line: if you are looking at the long term: more than 5 years, this is probably a good time to buy. But in the next two years, except a lot of volatility or just remain neutral altogether (my position right now). If you are looking for hedge, you can consider BZQ, an ETF that seeks daily results that correspond to twice (200%) the inverse of the MSCI Brazil Index

Brazil is out of recession. But should you buy it?

President Michel Temer and economic ministers will celebrate the growth of 1% of the Gross Domestic Product (GDP) in the first quarter of this year, compared to Q4 of 2016, excluding seasonal factors. When they do this, they will actually be celebrating the growth of agriculture and foreign demand (exports). Domestic demand – household consumption and investments – continued to fall and with worse results than expected.In the economists’ estimates, GDP would grow, on average, 0.9% in the first quarter of 2017 QoQ, in the seasonally adjusted series. Here, the recorded growth of 1% was slightly higher. But economists predicted 9.4% growth in agriculture and the GDP brought a rise of 13.4%. In industry, the result was also better, of 0.9% against a forecast of 0.8%. The services sector remained stable, but the expectation was a growth of 0.3%.

It is on the demand side that the GDP has been more frustrating. Economists projected the first increase (of 0.4%) after eight consecutive quarters of falling household consumption. The IBGE indicated, however, a further retraction of 0.1%, postponing the recovery. And the investment retreat was much deeper than expected. Estimates indicated a small decline of 0.3%, but the reality was cruel and the figure was negative at 1.6%. All comparisons are QoQ, minus the seasonal effects.

Weak domestic demand is also clear in trade data, down 0.6% from the end of last year.

The government may even celebrate the outcome, but from the standpoint of indicating a domestic recovery, GDP in the first quarter was worse than expected. And the political crisis and the signal issued yesterday by the Monetary Policy Committee (Copom) that the interest rate down trend will slow down, act to further delay the good news, so long awaited.

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