Dollar accumulates 8.5% in August and has a worse month in three years – 31-08-2018 – Market

A popular expression comes back to professionals in the financial market to define August: it was the month of the crazy dog. And for the time being, there are no expectations that September will be different.

The commercial dollar closed Friday (31) and recorded the biggest monthly jump in three years, in a month marked by political uncertainties in Brazil and widespread setbacks for emerging countries.

Despite the cease-fire in this trading session, with a decrease from 1.73% to R $ 4,073, the currency increased by 8.5% in August, the highest since 9 September 2015.

"The dollar is rising from R $ 3.70 to R $ 4.20 per month, a move of 50 cents is very strong," said Carlos Pedroso, senior economist at Banco MUFG Brazil.

The research by Einar Rivero of the financial information company Economatica also shows that the average dollar of the market, calculated by the Brazilian central bank, the so-called Ptax dollar, recorded the highest appreciation of the Brazilian currency for an August from the Real Plan ( 1994).

The advance in 2018 was 10.13%, against the last record of 7.45% in 2015.

In the year the commercial dollar collected a peak of 23%.

On this basis of comparison, of the world's 31 currencies, the real is showing the third largest devaluation against the dollar, and only lost to Argentina (-50.5%) and Turkey ( -42.5%), emerging from economic fundamentals such as current account deficits and weaker international reserves than Brazil.

Earlier this month, political and trade tensions between Washington and Ankara, where an American pastor was held prisoner, overthrew the lire and dragged emerging markets.

When the international scene began to give some relief, polls Geraldo Alckmin (PSDB), the preferred candidate on the market, still showed no traction, and investors began to estimate that a PT name would reach the second round.

Stress pushed the dollar to $ 4 for the first time in more than two years.

Analysts point out that the temporary relief of this sixth is a reflection of a correction movement, after more instabilities in an emerging, this time in Argentina, bring the dollar to R $ 4.21 the day before and force the BC.

The CDS (credit default swap), a country risk thermometer, reached 301.2 points (30) on Thursday, a level that had not been reached since December 2016. Now it is 302 points.

"The foreign exchange movement yesterday was exaggerated, so there is an aftermath," says Pedroso.

"The intervention of the Central Bank still gives the market signals that the government will act if necessary", says the senior economist of MUFG Brazil.

Moreover, the fall of the dollar in the afternoon took effect after the formation of Ptax (rate calculated by the BC and that serves as a reference for various contracts).

Money winning winners had worked to keep the course at a high level, but eased the pressure after it was closed.

Investors also responded to the news that the TSE (Supreme Electoral Court) would analyze the application in this session to register the candidacy of former President Luiz Inácio Lula da Silva (PT).

By the end of this edition, of the seven ministers, five had voted for the exclusion of the PT. At night the expectation was confirmed that he would fall under the Clean Sheet Act.

The Ibovespa, index of the most traded shares of the Brazilian stock exchange, rose by 0.36% this week to 76,677.53 points. In August it recorded a decrease of 3.2%, but in the year it remained a slight increase of 0.36%.

"The problematic external scenario has led to a more risky global investor and opts for more conservative options," said Filipe Villegas, equity analyst at Genial Investimentos.

"And in the context of the elections, Brazil ultimately suffers a bit more," he says.

For the Swiss bank UBS, until the elections are over, there should be no relief from the price of assets.

"We assume that the current level of the risk premium in connection with the elections will last until the end of October – although we can assume that the levels of volatility and uncertainty may increase there," the report said.

According to UBS, the end of the elections will bring less uncertainty, but not immediately, because the markets still have doubts about the capacity of the newly elected government to adopt reforms to stabilize the country's accounts.

In the report UBS increased the projection for the dollar at the end of the year from R $ 3.50 to R $ 3.70.

By the end of 2019, the expectation is one dollar of R $ 3.60, compared to R $ 3.45 in June.

Campaign on TV

In September, investors will monitor the first opinion polls after the election campaign began on TV, which began on Friday.

With 44% of the time, Alckmin will have to show if he has succeeded in using the advantage to increase voters.

"Historically, the month of September is usually low for the stock market, and certainly in years of election we warn investors, but you have to bear in mind that a pessimistic scenario is already priced," says Villegas.

Pedroso projects external tensions that are still present, but says that if there is no big news, they tend to settle for it.

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