Economic prospects and corporate earnings boost Brazilian Real

07-21-2009 14:12

The Brazilian currency reached a nine-month record high due to rising metal prices, increasing stock prices and on the back of corporate earnings exceeding expectations, which boosted the Brazilian economy. More improving economic data and continuation of the positive sentiment could continue Real’s rise.

Best result

Brazil’s Real gained for the seventh consecutive day, rising 0.8% from last Friday’s 1.9261 to 1.9106 a US Dollar. Previously the Real traded at 1.9041 a Dollar, which is the highest level since October 3th 2008. The Real rose 21% versus the Greenback so far this year, which is the best result of the 16 most important currencies. The Bovespa Bolsa de Valores, Mercadorias & Futuros de São Paulo (BM&F) is the largest stock market in Latin America and went up 1.4%.

Rise could continue

Win Thin, a senior currency strategist at Brown Brothers Harriman & Corporation commented: “The prospect for the worldwide economy has progressed, as commodities will face a more intensive demand, which bolsters risky assets. If economic figures continue to improve and if the positive sentiment remains steady, then the Brazilian currency could continue its rise versus the Greenback.”

GDP up by 2.2%

The index of US leading indicators, made up of 10 economic components, climbed in June for a third month in a row, emphasizing that Latin America’s largest economy could leave the most intensive slump in 50 years behind. Bank of America Corporation reported today that Brazil’s gross domestic product most likely rose by 2.2% in the second quarter of 2009 versus 2008. They also stated: “Mainly retail sales but also industrial production proved to be better than expected, adding evidence of a recovery in inventory levels, credit and labor conditions, investor and consumer confidence.”

Brazil’s earnings

Natura Cosméticos S/A, one of Brazil’s main manufacturers and marketers of perfume, solar filters, skin care, hair care products and cosmetics, reported a 19% rise in the second quarter, which exceeded expectations. The rise was caused by increasing consumer demand, which boosted Natura Cosméticos S/A’s sales. The BM&F climbed to the highest level in five weeks, shored by the rising Natura and Tam stocks. The New York Stock Exchange (NYSE) showed that copper prices posted the highest level in nine months and rose 2%. In the meantime, sugar climbed 1.5%, silver went up 2% and gold gained 1.3%. So far this year, the Brazilian Central Bank (Banco Central do Brasil) has reduced borrowing costs four times to 9.25; the lowest level in its history, in order to stimulate its economy.

Central bank’s benchmark rate unchanged

A review by the central bank among 100 economists showed that policy makers will most likely reduce their benchmark interest rate by 0.5% to 8.75 at the following meeting on July 21/ 22. The review proved that economist believe that the central bank will consolidate its benchmark rate in 2009 and that they will increase it to 9.38% at the end of next year.

Return

The return on Brazilian benchmark zero-coupon bonds expire date January 2010 dropped 0.04%, reaching 8.71%. The return on contracts expire date January 2010, the most intensive traded on the Bovespa Bolsa de Valores, Mercadorias & Futuros de São Paulo, remained unmoved at 8.63% in last night’s interest-rates futures market.