Tag Archives: president

Brazil downgraded by S&P – loses investment grade

Standard & Poor’s stripped Brazil of its investment-grade credit rating on Wednesday, making it even harder for President Dilma Rousseff to regain market trust and pull Latin America’s largest economy out of recession.

The faster-than-anticipated downgrade, which will likely hit Brazilian financial markets on Thursday, is a major setback for Rousseff as she tries to kick-start the economy and shore up public finances.

S&P cut Brazil’s rating to BB-plus, which denotes substantial credit risk, from BBB-minus. The outlook on the new rating remains negative, which means additional downgrades are possible in the near term.

The stripping of investment grade status, which Brazil won in 2008, represents the loss of a key imprimatur that solidified Brazil’s emergence as an economic power during a decade-long commodities boom that reverted in recent years.

The downgrade is expected to increase borrowing costs for the government and, worse, Brazilian companies. It will also cause Brazilian assets to lose valuable funding because many institutional investors are not allowed to buy or hold onto investments that are not rated investment grade.

S&P said its decision was based on the mounting political problems that have muddled economic policy.

These problems, S&P said, have been weighing on the government’s “ability and willingness” to submit a 2016 budget consistent with the significant policy fixes Rousseff promised after she won re-election last year.

Even though some measures are being taken by pro-marked ministry Levy, he still lacks the political support to make all the needed changes.

When Brazil first got the coveted investment-grade stamp from S&P, after decades of financial volatility, it was considered a star among developing nations.

Leveraging soaring export and tax revenue at the time, the ruling Workers’ Party broadened generous social welfare programs and encouraged lending by public banks, fueling a prolonged consumer boom.

Combined, the measures lifted 40 million people out of poverty. Once Rousseff took office, however, the economy began to slow down sharply and last quarter it officially entered a recession. (Reporting by Walter Brandimarte; Editing by Cynthia Osterman and Kieran Murray)

What is yet to be seen is how much of the downgrade was already priced into the exchange rate and asset prices. Both the Brazilian reais and stock markets are down pretty significantly in the last 12 months so a lot of analysts believe it may be a case of “sell the rumor, buy the fact” but time will tell if this is really the case.

Ethanol use in Brazil grows with new rules, says Louis Dreyfus unit

Ethanol producers in Brazil are feeling relief from improving demand, prices with tax incentives and an increase in the amount of fuel mixed with gasoline, according to a unit of Louis Dreyfus Commodities.

“I’m excited about the prospect of demand for ethanol this year,” said CEO Rui Chammas of Biosev in a telephone interview. “The market is reacting to the incentives.”

Sales of hydrated ethanol at gas stations in Brazil rose 32.6% in the first four months of the year, to 5.47 billion liters (1.44 billion gallons), while gasoline sales fell 3.7% after the government reintroduced a tax on fossil fuels that had been discontinued in 2012, showed regulator data.

Consumption has also increased due to a tax exemption in sales in the state of Minas Gerais, as well as the increase in the mandatory blending in the national gasoline, Chammas said. The Biosev is the largest producer of ethanol from Brazil after Raizen Energia.

Most of Brazil’s cars can be fueled with either gasoline or ethanol, and often consumers choose the most cost-effective fuel at the pump.

The country’s ethanol plants suffered from low demand in recent years, hurt by weak demand related to the measures by President Dilma Rousseff like price caps and tax breaks for gasoline in inflation control efforts. Only 36% of the country’s flex cars were fueled with ethanol last year, down from 82% in 2009, according to data from Datagro.

Since 2001, 49 producers were forced to close the doors and 67 others are under bankruptcy protection, according to a report from Unica.

Biosev’s harvest of sugarcane will probably grow in the 2015-2016 season, which began in April, with better weather after years of drought, Chammas said. The company expects to reach between 29 and 32 million tonnes this season, up from 28.3 million in the previous season.

Read More: Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Long in Brazil? Then Cheer Against it in FIFA’s World Cup

Wait.. What does football has to do with economy or stock investment? And even worse, how come a negative result for the country can be positive for it’s economy?

NeymarFair questions. And to answer them, we have  to remind that this year is also election year in Brazil and that football is not just one sport here. It is THE sport everyone follows. It’s almost embarrassing for us that we pretty much have no other sport. But the reality is it can change the country’s mood.

The other thing to be aware is that no matter what happens within the field, one thing is a given for this world cup: There will be riots! Maybe only pacific ones maybe not. In fact, PCC, a criminal organization is allegedly arranging less-than-pacific protests with black block. Now, the population in general is against any violent protest and would support the government and police in containing them. The part that can really change the election scenario is actually the pacific protests. And the reason is that those are supported by the majority of the population and tend to be very negative on the government currently on power.

Still not making any sense? We’ll get there… Bare with me.

So, what could change the population’s humor against the world cup? A Brazilian victory. If Brazil wins the hexa, protests will lose its strength. Make no mistake: most people in Brazil say they are against the world cup happening here but they will definitely get involved once the ball starts to roll.

So, if Brazil wins, it’s very likely that the government will get a little bit of a break and therefore Dilma becomes stronger for reelection in October/ November.

And that is why you should cheer against Neymar and team, if you are long. It’s been very clear lately the inverse relation between Dilma’s performance in the election pools and the stock market. Why? Because their government sucks (sorry for the technical term) for the private sector. PT, the labor party Dilma belongs to, has strong social programs and a good record of getting people out of poverty (especially in Lula’s first 4 years), which is great of course! But they don’t do the necessary investments and reforms the country desperately needs.

So.. what’s left? Vamos España! 🙂

Check out our analysis on Brazilian companies