Markets turn bullish on Brazil

US stocks closed lower on Tuesday, notching back-to-back losses as the market awaits the Fed statement on Wednesday. The NASDAQ led the slide, down 1.14% while the S&P and the DOW shed 0.75% and 0.30% respectively. Yield on 10Y USTs was higher at 1.4411%.

British inflation for November overshot at 5.1% – the highest in a decade – against an expected 4.7% reading. With core CPI also at 4.0% – the highest since 1992 – the BoE has a tough balancing act at Thursday’s MPC meeting with surging omicron infections potentially being headwinds in the recovery story. The pound firmed on the news, reaching $1.3270 at 8:20 GMT while yield on 10Y UKTs briefly shot to 0.748% having closed at 0.724%.

Asian stocks were mostly lower on Wednesday with China reporting some mixed data – retail sales growth slowed to 3.9% YoY in November from October’s 4.9% while industrial production improved to 3.8% YOY from October’s 3.5%; the CSI was in turn weaker at 0.87%. The HANG SENG and the ASX were similarly weaker at 0.91% and 0.70% down respectively. The NIKKEI however firmed 0.10% as a sector-gauge of industry activity went up 1.5% from October’s 0.5%.

Brazilian assets are starting to recover having plunged as the government blew through its spending cap. The benchmark IBOVESPA has risen 6.3% since the low at the start of December with bank analysts calling a bottom for the stock market as valuations hit their lowest in a decade; the IBOVESPA is only second to the HANG SENG in worst performances this year. Eurobonds have similarly rebounded with spread to core rates down some 40bps since November as the Economy Ministry a primary deficit of 0.4% of GDP in 2022. The real is yet to show similar signs of resurgence though, with the currency almost at 5.70 to the dollar having been 5.53 last week.