• Overview – In a challenging market environment, macroeconomic and policy divergence – the ‘new normal’ – remains the critical foundation of our updated views and forecasts, with the US economy, USD and US rates leading the way higher. This will ev...
This supersedes the version dated 12 February 2015. Page 1, corrects
• Rising risks of mandatory electricity rationing could have severe implications on the economy
• Even without rationing, we now expect zero economic growth in 2015
• If rationi...
Latam headwinds include lower commodity prices, slowing global demand, and a stronger USD
• For Mexico, some of these risks are priced in; we now expect a 25bps Banxico hike in June
• Lower global yields are a near-term positive development for t...
Direction signal now neutral from negative as foreign flows to EM debt, especially oil importers, improve
• Spread signal turns positive on flows to high-yielding oil importers (INR, ZAR, TRY, IDR) plus Brazil
• October fund allocations reflect ...
The COPOM minutes shows the BCB mainly responded to a weaker BRL
• We expect the COPOM to tighten at least another 100bps in consecutive 25bps hikes
• More disappointing signals on the fiscal front could generate a longer and/or steeper hiking cy...
Direction signal stays negative on weak demand for EM debt; EM FX weakness puts pressure on EM bonds
• Structural investors continue to favour Asia bonds; hard data supports Korea and Indonesia
• Flow rotation continues from Russia, Turkey and So...
Dilma returned to office by the narrowest margin in the post-war era
• Local market sentiment remains weak but FX positioning suggests that investors were prepared
• Dilma’s next finance minister appointment will be critical in stabilising market ...
First-round voting on 5 October may not produce a winner; a second-round vote is likely on 26 October
• President Dilma has retaken the lead in recent polls and the BRL remains the regional underperformer
• Marina’s inability to consolidate early ...
Direction signal stays negative on weak demand for EM debt
• Allocations moved towards Brazil in August on Marina Silva, a catalyst for change; now Dilma fights back
• Brazil’s subsequent underperformance makes it cheap and positioning is not skew...
Eduardo Campos’ (PSB) death has turned Brazil’s presidential elections upside down
• Marina Silva’s confirmation as the PSB’s candidate has dramatically increased its chances of victory
• We expect a positive market response to a Marina Silva wi...
• We recently revised our 2014 GDP growth forecast down to 1.8%, and our IPCA projection up to 6.3%
• But our growth forecast remains above-consensus, as we expect a boost from global growth
• The BCB is done, for now; we expect more hikes after t...
Economic indicators continue to disappoint. The latest figures show a poor performance for the third consecutive year. We expect 2014 to be similar. A weaker currency and a stronger global economy will likely boost external demand, while internal de...
We think the COPOM will deliver a 50bps hike at its 15 January meeting, and end the cycle in February
• Elevated inflation, deteriorating fiscal accounts and the risk of a downgrade all call for a tougher BCB
• We recommend that investors open a J...
The CDI market is now pricing 260bps in rates hikes up to January 2016
• We believe the cycle will likely pause with a last 25bps hike on 26 November 2013
• Current futures positioning suggests investors broadly agree with a prolonged tightening ...
• We met with local investors and corporates in Brazil; the mood is very gloomy
• Policy makers seem to understand the urgency of addressing micro-inefficiencies
• We revise our end-Q3 USD-BRL forecast to 2.60 from 2.07, our August SELIC rate call...
Temporarily weaker oil output and a continued global slowdown will likely pressure the BoP in 2013
• External accounts should trough in 2013, with continued improvement from 2014 onwards
• By 2020, Brazil’s oil and derivatives production is set t...
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