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Jonathan Wheatley

Jonathan Wheatley is the FT's deputy emerging markets editor. He was Brazil correspondent from 2005 to 2011, when he moved to London. He lived in São Paulo from 1992, writing for the FT, Business Week, the Economist Intelligence Unit and many others. He previously worked in television news, current affairs and documentaries in London.

How much lower can it go? The consensus on Brazil’s economic growth this year has been revised downwards for nine successive weeks, according to the central bank’s latest survey of market economists, and now stands at a meagre 0.9 per cent.

The consensus on growth next year is not much better, at 1.5 per cent. As our chart shows, estimates of growth this year (the black line) and next have been in decline for the past 12 months. (Longer, in fact. When the bank first asked economists about growth in 2014, they expected it to come in at 3.8 per cent.) Continue reading »

We’ve written recently about the scarcity of liquidity on EM secondary markets caused by regulatory changes and loose monetary policies in developed economies since the crisis of 2008-09. We’ve noted that those developments have also delivered abundant liquidity on primary markets, where bonds and equities are first issued (unlike secondary markets, where they are subsequently traded).

Flush with cash and hungry for yield, many investors have snapped up emerging market bonds and other assets they might well have sniffed at in more ‘normal’ times. Some analysts worry that this is driving a bubble. It may also be causing a related phenomenon: a breakdown in the correlation between risk and reward. If that is confirmed, a lot of EM investors face a nasty surprise. Continue reading »

Brazilian inflation broke the upper bound of the government’s target range in the first half of July, reaching an annual rate of 6.51 per cent according to the statistics office IBGE. It looks set to stay high until the country’s elections in October, putting further pressure on the candidacy of Dilma Rousseff, seeking re-election as president.

The half-monthly figures presented by the IBGE are not seasonally adjusted. But Neil Shearing at Capital Economics reckons they show a clear tendency to take annual inflation to 6.6 per cent for the full month, up from 6.5 per cent in June. Continue reading »

If EM investors were looking for a trigger for volatility, this must surely fit the bill. The downing of flight MH17, whoever is found to be responsible, appears certain to cause an escalation of geopolitical tensions already at a high level over Gaza, Iraq, Syria and Ukraine itself. Investors, whose attention has been focussed almost exclusively on the US Federal Reserve and the prospect of rising interest rates, must surely now put more political risk into their calculations.

But look at the reaction on markets and you have to conclude: not a bit of it. Continue reading »

Are liquidity conditions in emerging markets about to improve? A new report from CrossBorder Capital, which has been monitoring liquidity in DMs and EMs for a quarter of a century, offers cautiously positive evidence suggesting relief may indeed be at hand.

But “cautious” is the word. Mike Howell of CrossBorder Capital told beyondbrics: “It may not be hugely bullish news but it certainly isn’t bearish. It’s at least supportive of better market conditions.”

Given the extent to which market conditions have tightened, however, even limited support will receive an enthusiastic welcome from many market participants. Continue reading »

As Joe Leahy reported at the weekend, the back injury suffered on Friday by Neymar, Brazil’s star striker, is unlikely to hurt President Dilma Rousseff in her bid for re-election in October. She may even benefit, as the nation bonds together in grief or – there is, after all, still a chance – in celebration.

But Rousseff should forget Neymar. Come October, Brazilians will likely be much more worried about the economy. And here, Rousseff has plenty to fear. Continue reading »

The most casual followers of the Argentine debt saga will be familiar with the Latin term pari passu, or “equal footing” – or, in this case, equal payment to all holders of Argentine bonds, whether or not those holders took part in the country’s two restructuring programmes in 2005 and 2010 following its 2001 default.

Now Russ Dallen of Caracas Capital Markets, a veteran commentator on and broker in Latin America’s most exotic bond markets, has introduced another smattering of Latin to the story: pacta sunt servanda, or “contracts are for keeping”. Continue reading »

In an age of abundant liquidity, when financial markets are humming as never before, the idea that trade in emerging market debt could seize up might seem unlikely.

But that is what some analysts are warning is at risk of happening in EM secondary debt markets, where bonds that have already been issued are bought and sold. The result could be a disorderly sell-off across EM assets if – as is widely expected – US interest rates start to rise.

 Continue reading »

Is it the return of the fragile five? The currencies of Indonesia, Turkey, South Africa and India were the worst performing of the world’s 31 major currencies in the month according to Bloomberg, while that of Brazil – the fifth of the fragile five identified by Morgan Stanley last August at the height of the Fed-inspired taper tantrum – is roughly where it started the month after three months of gains. Continue reading »

The mood in Brazil has no doubt brightened after Monday night’s convincing win over Cameroon in the World Cup. On that showing, Brazilians will have plenty to cheer about over the next few weeks. At some point, however, they face the morning after.

A survey to be published tomorrow by LatAm Confidential, a research service at the FT, shows consumer confidence sinking to its lowest level since the survey began in February 2012. It follows a central bank survey of market economists on Monday in which the consensus on growth fell to a new low. After so much flair on the pitch, many Brazilians will be left wondering why the spark has gone out of their economy. Continue reading »

Can it really be true that liquidity on EM secondary markets is more constrained today than it was in the crisis of 2008-09? That’s what beyondbrics reported recently, to the surprise of some readers.

Our report was based on anecdotal and empirical evidence, mostly concerning local currency bond markets. We’ve had another look and found not only that liquidity on those markets is indeed tighter than it was, but also that tight conditions on EM bond markets pose a serious threat to stability on currency and other markets if – or in the view of many, when – investors start to rush for a very crowded exit. Continue reading »

Will the consensus on Brazil’s economy never bottom out? For the third week in a row, market economists have cut their outlook for GDP growth this year, to 1.24 per cent, according to a central bank survey. That’s down from 1.44 per cent last week and 1.62 per cent four weeks ago.

The consensus for next year is down, too, to 1.73 per cent, from 1.8 per cent last week and 2 per cent four weeks ago. Continue reading »

The rush of emerging markets into euro-denominated debt continued on Friday, with Morocco issuing a €1bn 10-year bond with a 3.5 per cent coupon, priced to yield 215 basis points above midswaps, the benchmark euro bond rate.

Mohamed Boussaïd, Morocco’s finance and economy minister (pictured), told beyondbrics that while market conditions had been favourable, the deal was above all an endorsement of Morocco’s economic and political reforms and of its success in steadily reducing the government’s budget deficit. Continue reading »

Excitement may be building among football fans before Thursday’s first kick-off in the World Cup but most Brazilians, it seems, wish it wasn’t happening (at least not in Brazil).

Are they right to be such kill-joys? Euler Hermes, a trade credit insurer that is part of the Allianz group, reckons they are. Its says the World Cup and the 2016 Olympic Games, to be held in Rio de Janeiro, will add hardly anything to growth and that what they do add will be cancelled out by the negative impact from the two events on inflation. On the up side, they could turn out to be catalysts of change. Continue reading »

Source: central bank

Another week, another deterioration in Brazil’s economic outlook. The consensus forecast for economic growth this year, according to the central bank, has fallen to just 1.44 per cent, from 1.5 per cent last week and 1.69 per cent four weeks ago.

The forecast for next year has also fallen, to 1.8 per cent, down from 1.85 per cent last week and 1.9 per cent four weeks ago.

With the World Cup starting this week and October’s elections heaving into view, this will not be welcome news in Brasília. Continue reading »