FXStreet (Delhi) – Research Team at BAML, suggest that the political landscape in Brazil remains complex and a political solution is needed to improve the economic prospects. In addition, Brazilian markets are trading risk premium more than fundamentals, creating opportunities for those who can withstand volatility.

Key Quotes

“We continue to think a political solution is needed for the economic scenario to improve. The key difficulty is that there are multiple possible scenarios and at this point it is very difficult to have confidence in the probability distribution over those scenarios.”

“Notably, the performance of asset prices following the downgrade suggests investors are comfortable with their bearish positioning. That said, any positive news at the margin will likely trigger stops. To us this all means volatility should remain high for now.”

“In an effort to react swiftly to the recent S&P downgrade and recover the grip of the economic and political game, the government announced a fiscal package of R$64.9bn. The program is oriented to fill the gap between the primary deficit of 0.5% of GDP included in the budget sent to Congress and the primary surplus of 0.7% of GDP previously announced on occasion of the downward revision of all fiscal targets.”