Banks believe it's time to trust the Brazilian economy

Good morning! We’re covering the new mood from private banks towards investing in Brazil’s economy. Jair Bolsonaro’s new far-right party. And what’s going on at the Supreme Court. (This newsletter is for platinum subscribers only. Become one now!)

Big banks believing in Brazil

A group of big banks, including Credit Suisse, UBS, JPMorgan, Goldman Sachs, BTG Pactual, and ratings agency Moody’s all

released reports yesterday recommending investors to go after Brazilian assets. The rationale is that, with emerging currencies losing power against the U.S. Dollar, stocks in such markets are too cheap to be ignored. It helps that, unlike neighboring countries, Brazil has not had to deal with violent street protests. The reports were enough to push the Brazilian stock market index up 1 percent, despite uncertainties about the U.S.-China trade war.  Why it matters. With Brazil’s country risk at pre-crisis levels, this could be a step further in the path to regaining investment-grade status—a pre-requisite for some major foreign funds to invest here. <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/11/shutterstock_443797801.jpg" alt="banks" class="wp-image-28467" srcset="https://brazilian.report/wp-content/uploads/2019/11/shutterstock_443797801.jpg 1000w, https://brazilian.report/wp-content/uploads/2019/11/shutterstock_443797801-300x199.jpg 300w, https://brazilian.report/wp-content/uploads/2019/11/shutterstock_443797801-768x508.jpg 768w, https://brazilian.report/wp-content/uploads/2019/11/shutterstock_443797801-610x404.jpg 610w" sizes="(max-width: 1000px) 100vw, 1000px" /><figcaption>Credit Suisse among the banks believing in Brazil</figcaption></figure> Banks see promising signs. October saw the creation of almost 71,000 net formal jobs in Brazil, thanks to the retail sector—which begins to boost its staff ahead of the holiday season. The average monthly salary for these new positions was BRL 1,600—which is a 2-percent bump from one year before, but a 0.48-percent drop against September. Paradigm shift? Benchmark interest rates in Brazil are at their lowest levels ever—and should see additional cuts in the near future. This means that low-risk-high-return investments are no longer a reality in Brazil. Regional economy. Social unrest and economic crisis in Latin America could hamper Brazil’s already ailing industry. Most Brazilian manufactured goods are exported to neighboring countries and the Brazilian International Trade Association (AEB) fears that what happened with Argentina—a drop of almost 50 percent in imports from Brazil—may repeat itself in other countries. <hr class="wp-block-separator"/> <h2>Jair Bolsonaro launches his new far-right party … sort of</h2> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13-1024x768.jpeg" alt="Commemorative plaque made out of bullet shells reads "Alliance for Brazil." Photo: Brenno Grillo/TBR" class="wp-image-27976" srcset="https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13-1024x768.jpeg 1024w, https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13-300x225.jpeg 300w, https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13-768x576.jpeg 768w, https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13-610x458.jpeg 610w, https://brazilian.report/wp-content/uploads/2019/11/WhatsApp-Image-2019-11-21-at-13.54.13.jpeg 1040w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Commemorative plaque made out of bullet shells reads “Alliance for Brazil.” Photo: Brenno Grillo/TBR</figcaption></figure> President Jair Bolsonaro launched his new party, the Alliance for Brazil, in a ceremony in Brasília yesterday, amid uncertainty about the group’s viability for the 2020 municipal elections. On Brazil’s electronic voting machines, Mr. Bolsonaro’s group will be represented by the code 38—a reference to the .38 caliber revolver. At the core of the party’s values are religion, ultra-neoliberalism, and fierce opposition to gun control. Why it matters. Up until this point, Brazil had no overtly far-right party. And the Alliance for Brazil will begin life by holding the highest office in the land. Why call it far-right? Calling Mr. Bolsonaro’s new party far-right is by no means an editorial decision—but follows concepts from political science. As <a href="https://www.radicalrightanalysis.com/2019/01/17/concept-structures-and-the-far-right/">proposed by Andreas Dafnos</a>, a researcher on far-right groups in the UK at Sheffield University, what constitutes a far-right group is “the amalgamation of three ideological characteristics: nationalism, xenophobia, and authoritarianism.”  (1) Mr. Bolsonaro’s campaign slogan starts with “Brazil above everything.” (2) The president has <a href="https://exame.abril.com.br/brasil/bolsonaro-chama-refugiados-de-escoria-do-mundo/">called refugees</a> “the scum of the earth.” (3) For as long as he has been in public office, Mr. Bolsonaro has defended right-wing dictators, such as Chile’s Augusto Pinochet. In this case: check, check, and check. Viability. In order to participate in the 2020 municipal elections, the Alliance for Brazil will have to break all sorts of records to finalize the creation of the party—a process that requires collecting the physical signatures of half a million voters. To make things worse, members of the Social Liberal Party—which Mr. Bolsonaro left in horrible terms—have said they will bend over backward to challenge the creation of the Alliance in court at every turn. <hr class="wp-block-separator"/> <h2>Financial data trial: the situation so far</h2> The Supreme Court suspended its trial on whether anti-money laundering authorities are allowed to flag suspicious financial transactions to law enforcement prior to a court’s ruling. So far, only two justices voted—proposing different things. Chief Justice Dias Toffoli, the case’s rapporteur, wants to restrict this possibility in cases that involve a third party, which would essentially shield anyone that has a joint account with a spouse for instance. Justice Alexandre de Moraes, however, believes there should be no limitations to the current rules. On Wednesday, Justice Edson Fachin votes. Why it matters. Over 900 investigations have been started—and are currently halted until a ruling is reached—thanks to information flagged by anti-money laundering authorities. Precedent. A previous Supreme Court trial had considered that the 2001 law allowing the sharing of such information does constitute a breach of bank secrecy—as no data becomes public knowledge, rather being analyzed by institutions that are required to maintain confidentiality. Where the court is leaning. Three justices have argued against the Chief Justice’s opinion, saying they believe anti-money laundering authorities shouldn’t be included in this trial in the first place—and that the Supreme Court should only look at the sharing of tax information from the Federal Revenue Service. — with Brenno Grillo <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> Banks. São Paulo’s municipal government slapped a BRL 3.8 billion fine on Itaú Unibanco, Brazil’s biggest privately-owned bank. A parliamentary investigation committee found Itaú guilty of tax evasion after it had registered two of its subsidiaries in neighboring cities in Greater São Paulo but these companies’ employees were operating from the bank’s headquarters, in São Paulo. Other banks were found guilty, too, but reached settlements for a combined BRL 280 million. Itaú was the only bank that did not sign a deal with authorities. Oil & gas. Petrochemical giant Braskem is changing its CEO. Fernando Musa will be replaced by Roberto Simões, the current chairman of the board. Mr. Simoes was one of the sole executives of the Odebrecht construction group (which controls Braskem) to escape without harm from Operation Car Wash. Braskem’s Q3 earnings reported an increase in provisions for judicial losses from BRL 15 to 48 billion. Politics. From today through Sunday, the Workers’ Party holds its national congress. Two weeks after its only heavyweight leader, ex-president Lula, was released from prison, the party will discuss strategies for the 2020 municipal elections and how to become a relevant player in Congress again. In 2019, with Lula behind bars due to a corruption and money laundering conviction, the Workers’ Party has become a shell of a party—offering almost no true opposition to President Jair Bolsonaro. Apps 1. Ride-hailing app 99—the Brazilian unicorn now owned by China’s Didi Chuxing—is holding trials to launch its own <a href="https://brazilian.report/money/2019/07/10/pizza-boom-delivery-apps-brazil-market/">food delivery app</a>, 99Food. The Chinese tech giant comes late to the party, and will join an already crowded and cut-throat market almost completely dominated by local player iFood. Earlier this year, Spanish delivery app Glovo ceased operations in Brazil, stating that <a href="https://epocanegocios.globo.com/Empresa/noticia/2019/03/glovo-decide-deixar-o-brasil.html">entering the Brazilian market</a> required more investment than they had imagined. Apps 2. As of December, ride-hailing app Uber will reportedly allow Brazilian users and drivers to record the background sound of their rides. If an incident were to occur, the audio file can be sent to the company as part of a complaint. Uber says the new feature aims at improving safety, along with its strategy in Texas of recording <a href="https://www.nytimes.com/2019/11/20/technology/uber-recording-rides-privacy.html">rides on video</a>. A report by The Intercept shows that <a href="https://theintercept.com/2018/11/11/estupros-uber-taxis-99/">74 cases of sexual violence</a> occurred in rides hailed through apps between January 2016 and July 2018. Copa Libertadores. Tomorrow, Brazil’s most popular football club, Flamengo, plays Argentinian giants River Plate in the Copa Libertadores final. We at The Brazilian Report have prepared a guide with everything you need to know to follow the game. <a href="https://brazilian.report/?p=27921&preview=true">Read now</a>.

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