We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bearish
USD/JPY
Bullish
Gold
Bullish
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Silver: 1.60% Oil - US Crude: 0.79% Gold: 0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/f6xT4Uo2tO
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.20% 🇦🇺AUD: 0.13% 🇬🇧GBP: 0.08% 🇨🇭CHF: -0.03% 🇨🇦CAD: -0.05% 🇯🇵JPY: -0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/co2JkXN1A9
  • LIVE NOW: Join DailyFX Senior Strategist @IlyaSpivak LIVE as he discusses the outlook for the financial markets in the week ahead! https://www.dailyfx.com/webinars/889679267?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.08%, while traders in France 40 are at opposite extremes with 89.09%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/spZkZaPsuM
  • AUD/USD Technical Analysis: September Floor Back Under Fire - https://www.dailyfx.com/forex/technical/home/analysis/aud-usd/2019/09/23/AUDUSD-Technical-Analysis-September-Floor-Back-Under-Fire.html?utm_source=Twitter&utm_medium=Spivak&utm_campaign=twr #AUDUSD #technicalanalysis
  • LIVE IN 30 MIN: Join DailyFX Senior Strategist @IlyaSpivak LIVE as he discusses the outlook for the financial markets in the week ahead! https://www.dailyfx.com/webinars/889679267?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • $AUD watchers should keep a close eye on iron ore prices. They fell sharply last month, albeit from very high levels. Get your market update from @DavidCottleFX here: https://t.co/pEY7SReQ7R https://t.co/da6P4i4qBL
  • Tune in to @IlyaSpivak 's #webinar at 10:00 PM ET/2:00 AM GMT for insight on the cross market weekly outlook. Register here: https://t.co/E213bTtq5C https://t.co/QEgLPbz9Xp
  • RT @KyleR_IG: #ASX jumps half-a-per-cent this morning, as China's Vice Agriculture Minister states that last week's cancelled visit by a Ch…
  • #EURJPY pivot points (daily) – S3: 116.5, S2: 117.87, S1: 118.21, R1: 119.13, R2: 119.72, R3: 120.64 - https://www.dailyfx.com/pivot-points?ref=SubNav?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
BRL, Ibovespa at Risk From Brazil-China Investment Negotiations

BRL, Ibovespa at Risk From Brazil-China Investment Negotiations

2019-05-23 02:00:00
Dimitri Zabelin, Junior Currency Analyst
Share:

TALKING POINTS – BRL, IBOVESPA FUTURES, BOLSONARO, GLOBAL GROWTH

  • Brazil Vice President Hamilton Mourao to meet with high-level officials, Xi Jinping
  • This is part of a diplomatic effort to fortify relationship after Bolsonaro’s comments
  • Weaker demand out of China, slow pension reform progress weighs on Brazil econ

See our free guide to learn how to use economic news in your trading strategy!

BRAZIL-CHINA RELATIONS

BRL and the benchmark Ibovespa equity index will be closely watching the five-day negotiations between Brazilian Vice President Hamilton Mourao and high-level Chinese officials. Hamilton is expected to meet with General Secretary of the Communist Party of China Xi Jinping. Brazil-China relations have somewhat deteriorated ever since Jair Bolsonaro became President.

“The Chinese can buy in Brazil, but they can’t buy Brazil”, said Bolsonaro. Most of his appointees have a military background, and as such, are hesitant to have close ties with a country that potentially poses a security threat. This comes against the backdrop of greater scrutiny over potential security threats posed by Chinese tech giant Huawei.

Both China and Brazil are major players in the emerging market association known as BRICS – Brazil, Russia, India, China and South Africa. China is also Brazil’s largest trading partner and the biggest consumer of Brazilian iron ore. Brazil may also soon replace the US as China’s biggest client of imported soybean products due to Beijing’s tariff imposition on US-based soybean crops.

Brazil-China tensions have already somewhat softened after officials in Sao Paulo stated that they will no longer seek WTO intervention on China’s policies on sugar tariffs. The concession was likely a gesture of good faith ahead of this week’s talks and may provide a more favorable backdrop to investment negotiations.

Chart showing Chinese imports of coal

However, the small boon granted from the US-China trade war is outweighed by the cost associated with the economic conflict. As an emerging market economy, Brazilian assets are particularly sensitive to changes in global risk appetite. This reaction will only be amplified as the government attempts to open up Brazil’s economy to the world, making it more in sync – or vulnerable – to changes in global demand.

BRAZIL ECONOMY OUTLOOK

A few days ago, the Brazilian Economy Ministry cut the country’s GDP forecast for 2019 from 1.6 percent to 2.2 percent. Some of this has to do with the slow progress and uncertain outlook on Bolsonaro’s market-disrupting pension reforms and the implications they have domestic growth prospects. Pessimism over the outcome has led to slower economic activity and reduced the appeal of the Brazilian Real.

USDBRL at its Highest Point Since October 2018 – Daily Chart

Chart Showing USD/BRL

The Ibovespa has been showing some improvement, with futures retesting support after previously breaking through it. While Brazilian markets have been primarily driven by the progress on pension reforms, this market move may have less to do with the structural plans and more with the central bank. If economic data continues to underperform, it may prompt monetary authorities to adjust to a more dovish stance.

Ibovespa Futures Retesting Support

Chart Showing Ibovespa futures

The prospect of cheaper credit may therefore be the leading cause behind the rally in the Ibovespa. Looking ahead, US-China trade relations will persist as a global fundamental headwind and will continue to pressure Brazilian exports. Looking ahead, negotiations between China and Brazil will be crucial to see if a stronger relationship will lead to greater investment that could help lift up Brazilian economic activity.

FX TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.