Covid-19 vaccines could see Brazilian currency rally in 2021

. Nov 19, 2020
Brazilian currency

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Today, we look at how the Brazilian currency can bounce back from its Covid-19 rout. Brazil’s vaccine deals. And the first consequences of Brazil’s anti-China moves.

There is hope for the Brazilian currency

The Brazilian Real has been one of the worst-performing currencies in the world this year,

losing 33 percent against the U.S. Dollar since January 1. But the Brazilian currency could enjoy redemption in 2021, according to some banks&#8217; predictions.</p> <ul><li>The recent disclosure that three potential coronavirus vaccines have a 90-plus-percent efficiency rate — and Pfizer announcing the <a href="">conclusion of phase 3 trials</a> — led banks to project a massive devaluation of up to 20 percent for the American currency.</li></ul> <p><strong>What they are saying.</strong> A report by Citigroup says that the massive distribution of vaccines will spur trade and boost the world&#8217;s top economies — which would benefit Brazil, a commodity exporter. Meanwhile, the bank expects the U.S. Federal Reserve to continue its stimulus policies and &#8220;err on the side of caution&#8221; before increasing interest rates. That could encourage investors to take their money into riskier markets, such as Brazil.</p> <ul><li>Goldman Sachs is less bullish, but still expects the USD to slide 6 percent on a trade-weighted basis over the next 12 months. It also foresees a post-inflation devaluation of up to 15 percent of the currency by 2024.</li><li>“We are in the perfect environment for a rally in risky assets, a weaker dollar, and stronger growth-sensitive currencies through the end of the year,” George Saravelos, global head of currency research at Deutsche Bank, was quoted as saying.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/4399816"><script src=""></script></div> <p><strong>But, but, but … </strong>The scenario seems promising, but for the positive currency predictions to become real, Brazil must prevent its public deficit from spiraling out of control. Among its emerging market peers, Latin America&#8217;s top economy has the worst debt-to-GDP ratio: 90.6 percent, according to the Brazilian Central Bank.</p> <ul><li>There are many question marks still hanging over Brazil, as Congress has yet to vote on the budgetary guidelines for 2021, risking the country entering next year without a clear picture of how public spending will be organized. Moreover, economists expect unemployment rates to explode next year, which could force the government to rely on aid programs that would balloon the public debt.</li><li>On Wednesday, Fitch Ratings kept Brazil&#8217;s <a href="">sovereign debt rating at BB-</a>, but with a negative outlook due to &#8220;persisting uncertainty regarding fiscal consolidation prospects, including the sustainability of the 2016 spending cap (the main fiscal policy anchor) given continued spending pressure.&#8221;</li></ul> <hr class="wp-block-separator"/> <h2>Pfizer offers vaccine doses to Brazil</h2> <p>Pharmaceutical giant Pfizer said in a statement that it has made a proposal to provide Brazil with &#8220;millions&#8221; of doses of its potential coronavirus vaccine in the first half of next year. The Health Ministry confirmed a meeting with Pfizer representatives and said the government will buy the vaccine if it is proven safe and cleared by local regulators.</p> <ul><li>The ministry will also meet this week with Johnson &amp; Johnson, India&#8217;s Bharat Biotech, and the manufacturer of Russia&#8217;s Sputnik V vaccine.</li></ul> <p><strong>Meanwhile … </strong>The state government of São Paulo is set to receive the first 120,000 doses of the <a href="">Chinese-made CoronaVac vaccine</a> today, developed by Sinovac Biotech in partnership with the state&#8217;s Butantan Biological Institute. &#8220;From now on, we will get weekly shipments until having 6 million doses by the end of December,&#8221; said Governor João Doria on Wednesday.&nbsp;</p> <ul><li>Another 40 million-plus doses will be produced in Brazil with supplies provided by Sinovac, according to terms of the BRL 85-million deal (USD 15.85 million) signed by state authorities. Preliminary data indicates the vaccine has a 97-percent effectiveness rate on patients.</li></ul> <p><strong>Regulation.</strong> Authorities are moving towards <a href="">fast-tracking licensing processes</a> for potential Covid-19 vaccines. The National Health Surveillance Agency (Anvisa) passed a norm allowing companies to send data as it is compiled, as opposed to waiting for thick dossiers at the end of each testing phase.</p> <ul><li>Within two months, Anvisa is set to <a href="">certify</a> two vaccine manufacturing plants belonging to Sinovac and British-Swedish lab AstraZeneca — which is developing a potential vaccine with the University of Oxford — to produce doses in Brazil.</li></ul> <p><strong>Why it matters.</strong> Both cases and deaths are going up in Brazil, and experts are braced for a deadlier second wave of the virus.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/2641109"><script src=""></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/2641192"><script src=""></script></div> <hr class="wp-block-separator"/> <h2>BRICS statement dashes Brazil&#8217;s UN hopes</h2> <p>The <a href="">final declaration</a> of the latest BRICS Summit showed that Brazil, India, and South Africa have lost support from the group&#8217;s two diplomatic top dogs —&nbsp;Russia and China&nbsp;—&nbsp;in their struggle for more diplomatic prominence. Over the past decade, the group had consistently shown support for expanding the United Nations Security Council, with the inclusion of the three emerging countries as permanent members. This time around, this matter was not even mentioned in the summit declaration.</p> <p><strong>Why it matters.</strong> A permanent seat on the UN Security Council is one of Brazil&#8217;s biggest diplomatic goals and would make the country a bonafide — albeit peripheral — geopolitical power.</p> <p><strong>What lies beneath.</strong> Joint declarations in summits such as these are carefully crafted by diplomats and government officials, laying down countries&#8217; international positions. Therefore, such an omission cannot be seen as mere oversight.</p> <ul><li>This omission comes as the Brazilian government is taking increasingly anti-China stances, whether on the <a href="">World Trade Organization</a> or regarding <a href="">5G technology</a>. Last week, Brazil’s Foreign Affairs Ministry announced that the country supports the U.S. Clean Network proposal to build a global digital alliance to “free the world from authoritarian malignant actors, such as the Chinese Communist Party.”</li></ul> <p><strong>New bromance.</strong> It has been just a couple of weeks since Donald Trump lost the U.S. presidential election, but Jair Bolsonaro already seems to have found a new international populist best friend: Russia&#8217;s Vladimir Putin. The Brazilian president <a href="">posted a video</a> on Twitter of Mr. Putin speaking during the BRICS Summit.&nbsp;</p> <ul><li>According to a translation provided by Mr. Bolsonaro himself, the Russian leader praised him for &#8220;displaying the best masculine qualities,&#8221; as well as showing &#8220;grit&#8221; and &#8220;courage&#8221; when faced with Brazil&#8217;s challenges.</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Congress. </strong>With the year winding down and 2021&#8217;s budget still to be voted on, members of the Bolsonaro administration have already admitted that no other relevant legislation will be approved in Congress until February 2021 — when both congressional houses will have chosen new speakers and presidents. Bills that would make the federal budget more flexible and the creation of a <a href="">new cash-transfer program</a> sit atop the government&#8217;s agenda. </li><li><strong>Rapprochement.</strong> Jair Bolsonaro&#8217;s secretary for strategic matters, Admiral Flávio Rocha, hosted a dinner party with the president&#8217;s son and <a href="">top foreign affairs advisor</a>, Congressman Eduardo Bolsonaro, and Argentinian ambassador Daniel Scioli. The meeting was a gesture to bury the hatchet between the Bolsonaro administration and the Alberto Fernández government in Argentina — after months of icy exchanges between the two heads of state. Argentina is Brazil&#8217;s third-biggest <a href="">trading partner</a> — and Brazil&#8217;s is Argentina&#8217;s number-one consumer market. </li><li><strong>Amapá.</strong> A state electoral court ordered the municipal election in Amapá state capital Macapá to take place on December 6 — with a possible runoff election on December 20. The city was the only one not to participate in <a href="">Sunday&#8217;s election</a> due to <a href="">multiple power outages</a> which disrupted basic services and telecommunications, leading to protests. </li><li><strong>Hacking.</strong> The Superior Court of Justice, Brazil&#8217;s second-highest judicial body, has reportedly normalized its servers — two weeks after systems were <a href="">disrupted by hackers</a>. It remains unclear exactly how much sealed information from active cases was accessed by the perpetrators, who had demanded a ransom in exchange for returning encrypted data. The court&#8217;s IT department managed to restore the database using backup files.</li><li><strong>Aviation.</strong> Gol Airlines, Brazil&#8217;s biggest carrier, said it could resume the use of Boeing 737 Max planes. The aircraft was cleared by the U.S. Federal Aviation Administration (FAA) 20 months after being grounded worldwide, following two fatal crashes that exposed safety failures. Last year, we showed how Brazil became the <a href="">only country to demand specific training for the 737 Max</a>. The FAA did not, “due to the similarities between the new model and the previous generation of the series.” But Brazilian regulators had found over 60 differences in the 737 Max.

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