Good morning! The U.S.-China trade war could become a currency war — and that is bad for Brazil. The São Paulo governor is in China, trying to get investments to boost the city’s metro system. Brazil’s violence map shows how crimes are concentrated in just 2 percent of Brazilian municipalities.

Risks of a U.S.-China currency war spell trouble for Brazil

The ongoing trade war between

the U.S. and China (Brazil&#8217;s top 2 trading partners) is about to enter a more dangerous phase. As the Chinese Yuan sank against the U.S. Dollar (to CNY 7: USD 1), U.S. President Donald Trump labeled Beijing a &#8220;currency manipulator,&#8221; which could pave the way for sanctions from Washington. But, as China holds more than USD 1tr in U.S. Treasury securities, &#8220;the nightmare scenario would be the weaponization of Chinese official foreign exchange reserves against the U.S.,&#8221; writes <em>The Financial Times&#8217;</em> John Plender.</p> <p><strong>Why it matters.</strong> A currency war can never end well—and they increase volatility across the globe. It is not an event limited to tariffs. Instead, it affects the interest rate market and the stock exchange, among other factors. Tony Volpon, head economist of UBS in Brazil, said in an interview: &#8220;When the trade war was limited to tariffs, the effects on global GDP were limited—around 0.2 or 0.3 percentage points. Now, the effects could be more widespread and felt harder.&#8221;</p> <p><strong>Markets. </strong>The escalating tensions between the world&#8217;s two superpowers sent shockwaves through the markets—and the blow was particularly hard on emerging economies, with investors becoming risk-averse. The São Paulo stock market index dropped 2.51 percent to its lowest level since June. One piece of data shows how tense the international scenario is right now: the exit of foreign money from the Brazilian market between January and August (USD 2.92bn) is the biggest since 2008, when the global financial crisis exploded.</p> <div class="flourish-embed" data-src="visualisation/571313"></div><script src=""></script> <p><strong>Selic.</strong> The Central Bank will today publish the minutes of last week&#8217;s meeting which resulted in the lowering of Brazil&#8217;s benchmark interest rate from 6.5 to 6 percent. Unless the bank altered its evaluation of the international scene, weighing up the possible U.S.-China currency war, the document may already be outdated.</p> <ul><li><strong>Go deeper: </strong><a href="">Currency war risks instability and deforestation in Latin America</a></li></ul> <hr class="wp-block-separator"/> <h2>São Paulo seeks Chinese investment to expand metro lines</h2> <p>São Paulo Governor João Doria is leading a group of politicians and businessmen on a trip to China, where he hopes to secure investments for his state. The main goal is getting a deal to expand São Paulo&#8217;s metro network—which since 1974 has grown at the slow pace of 1.9 stations per year. China, on the other hand, has expanded its metro system tenfold in recent years. In a video with Mr. Doria, Chen Fenjian, global CEO of the China Railway Construction Corporation (CRCC), expressed his interest to take on infrastructure projects in São Paulo.</p> <h4 style="text-align:center">The expansion of China&#8217;s metro system</h4> <figure class="wp-block-image"><img src="" alt="" class="wp-image-21811"/></figure> <p><strong>Why it matters.</strong> Infrastructure is a glaring hole in Latin America&#8217;s biggest metropolis. São Paulo&#8217;s metro system (not counting metropolitan overground trains) has only 6 lines and 94 stations, but receives about 4.5m passengers every day. The construction of a new line has been paralyzed since 2016, and Mr. Doria hopes to get the project going quickly. But Brazilian construction companies are in bad shape financially, and Chinese investment could be a quick solution to the problem.</p> <p><strong>Other projects.</strong> According to Mr. Doria, CRCC also demonstrated an <a href="">interest</a> in exploring cargo and passenger transportation in São Paulo&#8217;s Pinheiros River—as well as setting up entertainment projects on its banks. That, however, is more of a long-term project, as the Pinheiros River is notorious for being highly polluted. Mr. Doria promised to clean up the river by 2022—which seems like a very long shot indeed.</p> <ul><li><strong>Go deeper: </strong><a href="">Brazil more dependent on China than ever</a></li></ul> <hr class="wp-block-separator"/> <h2>Brazil&#8217;s Violence Map</h2> <p>The Institute for Applied Economic Research (Ipea) has published the 2019 edition of its Violence Map study, breaking down data from all municipalities with over 100,000 residents. It shows that 50 percent of the country&#8217;s 65,602 murders in 2017 were concentrated in just 2.1 percent of the country&#8217;s municipalities (or 120 cities). &#8220;Data shows that Brazil concentrates 14 percent of homicides on earth—which makes the violence problem seem unsolvable. But, when we identify the focal points of violence, we can orientate public policies in the right direction,&#8221; said Daniel Cerqueira, the research&#8217;s coordinator.</p> <p><strong>Why it matters.</strong> Violence is pointed out by Brazilian voters as one of the country&#8217;s main problems—and tough-on-crime rhetoric has become a winning formula for conservative politicians. Jair Bolsonaro, for example, rose from being a backbencher congressman to president thanks to his repeated discourses on the need to crack down on crime. Mr. Bolsonaro&#8217;s solutions (which are based on the state acting more violently than criminals), however, are criticized by nearly every expert on the matter. In a recent interview, he said that under his watch, criminals will &#8220;die like cockroaches&#8221; on the streets—something he believes must be celebrated.&nbsp;</p> <figure class="wp-block-image"><img src="" alt="brazil violence map" class="wp-image-21810" srcset=" 1024w, 150w, 300w, 768w, 610w, 1066w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <hr class="wp-block-separator"/> <h2>You should also know</h2> <p><strong>Research.</strong> The government named Darcton Damião the new interim head of the National Institute for Space Research (Inpe). His predecessor, Ricardo Galvão, was fired after publishing data showing that deforestation has gone up in recent months. Mr. Damião is a former director of research and innovation at Uniminas—one of the largest producers of steel in the Americas, owning major steel mills in Brazil.</p> <p><strong>Amazon invasion?</strong> In an article to online magazine <em>Foreign Policy</em>, Harvard professor Stephen M. Walt wrote that Jair Bolsonaro&#8217;s stances on the environment pose a risk of international pressures to avoid climate change mounting over Brazil. He wrote that &#8220;it&#8217;s only a matter of time until major powers try to stop climate change by any means necessary,&#8221; not ruling out sanctions like those on Iran or Venezuela (more below).</p> <p><strong>Venezuela.</strong> The Trump administration will announce today harsh economic sanctions against the Nicolás Maduro regime. All assets belonging to the Venezuelan government in the U.S. have been frozen, and transactions with the Caribbean nation have been forbidden. Only Iran, Cuba, North Korea, and Syria currently suffer this kind of sanctions—aimed at economically asphyxiating the incumbent regime.</p> <p><strong>Senate 1.</strong> As we explained in our latest <a href="">Weekly Report</a>, the Senate will take center stage in the second half of 2019, holding pivotal votes for the government. Trying to get in Senate President Davi Alcolumbre&#8217;s good graces, President Bolsonaro will give him the right to choose two of the four new members of Cade, Brazil&#8217;s antitrust authority, which the government is set to appoint.</p> <p><strong>Senate 2.</strong> In an interview, the president once again said that should the Senate fail to confirm his son—Congressman Eduardo Bolsonaro—to the position of Brazilian ambassador to Washington, he would name him the Foreign Minister (for which he needs no authorization). The strategy could work, as many opposition senators now believe that sending Eduardo to Washington would actually be damage control.

Read the full story NOW!

BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.