Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Tuesday, September 18, 2007

Brazil and Safe Havens

Ok, as the US starts to slow, and Japan and Germany follow suit, the interesting question is going to be to try and follow who in the emerging markets sector can hold up under the pressure. Brazil will be an interesting test case in this sense. Bloomberg today:

Brazil's real rose after the Federal Reserve cut the benchmark U.S. lending rate more than expected, making yields on Brazilian bonds more attractive and buoying expectations that demand for the country's exports will remain strong.

The real rose to a six-week high, climbing 2.2 percent to 1.8770 per dollar at 3:41 p.m. New York time after the Fed cut the benchmark rate by a half-percentage point to 4.75 percent. The real touched 1.8730, the strongest since Aug. 3. Brazil's currency has appreciated 13.9 percent this year, the second- biggest gain among the 16 most actively traded currencies tracked by Bloomberg News.

``A half-point cut sends a very clear message the Fed is not just looking at inflation, it's also making economic growth a priority,'' said Rogerio Chequer, who helps manage about $150 million of emerging-market stocks and bonds at Atlas Capital Management in White Plains, New York.

The real may strengthen to 1.85 reais per dollar over the next month, said Ronie Marcelo Germiniani, proprietary trading manager in Sao Paulo at Banco Itau SA, Brazil's biggest non- government bank in terms of market value.

The rate cut reassured investors that the world's largest economy will continue to grow, preserving demand for Brazilian exports such as orange juice, steel, coffee and soybeans.

Brazil's trade surplus widened to $3.54 billion in August from $3.35 billion the previous month, according to the Trade Ministry. That exceeded the $3.1 billion median estimate in a Bloomberg survey of 18 economists.

Record Exports

Exports rose to a record $15.1 billion last month from $14.1 billion in July, while imports also increased to a record $11.6 billion from $10.8 billion in July, the ministry said.

Brazil's 11.25 percent benchmark rate is among the highest in the world and is more than double the U.S. rate, helping lure capital to the country's fixed-income market.

The yield on Brazil's benchmark zero-coupon bonds due in January 2008 fell 2 basis points, or 0.02 percent, to 11.1 percent, according to B

Monday, September 17, 2007

Banco Santander in Brazil

This is an interesting piece from Bloomberg this morning:

Botin Builds `Republic of Santander' in Lula's Brazil

Brazil's trade minister is a former executive at Banco Santander SA. So is the man who oversees the country's monetary policy. Spain's biggest bank spent 1.8 million reais ($948,000) to back President Luiz Inacio Lula da Silva's campaign in 2002.

Now Santander is bidding for ABN Amro Holding NV's Brazilian unit to double its size in Latin America's largest economy. The deal would make Santander the biggest non-state bank in Brazil, ahead of Banco Itau Holding Financeira SA.

``Brazil is fast becoming the Republic of Santander,'' said Paulo Pereira da Silva, a federal deputy and head of Forca Sindical, the country's second-biggest union grouping. ``The bank's influence is growing.''

Santander Chairman Emilio Botin built ties to Lula as other lenders pulled back on concern the former labor leader would default on Brazil's debt, said Mauro Guillen, who wrote a history of the bank. Five years later, Citigroup Inc. and HSBC Holdings Plc are vying for a bigger slice of the Brazilian market as declining interest rates increase demand for loans.

``If they succeed in buying ABN Amro, Santander will become a Brazilian powerhouse,'' said Guillen, a professor at the Wharton School in Philadelphia. ``It's a quantum leap.''

Santander, based in the northern Spanish town of the same name, is part of a group led by Royal Bank of Scotland Group Plc that has offered 72 billion euros ($100 billion) for Amsterdam- based ABN Amro. The Spanish bank would get ABN Amro's Brazilian unit, Banco Real and Italian lender Banca Antonveneta SpA. A Santander spokesman declined to comment on ties to Lula.

Banespa Purchase

Botin appeared with Lula at a ceremony today in Madrid, where he said he expected Brazil to receive an investment-grade credit rating within 18 months.

``You know that we believe in Brazil,'' Botin told Lula, reminding him how they first met in his campaign office before the 2002 elections.

Santander, which entered Brazil in 1982, made its biggest push in 2000, when it bought Banco do Estado de Sao Paulo SA, known as Banespa, for $4.8 billion. Botin paid more than three times the price offered by the next-highest bidder, Uniao de Bancos Brasileiros SA, or Unibanco.

The rising value of Brazilian banks shows Santander's investment was sound, said Francisco Luzon, the bank's Latin America chief. Shares of Unibanco, Brazil's sixth-biggest bank by assets and the closest in size to Banespa, have risen fourfold since 2000, giving it a market value of 50.7 billion reais.

Yet Banespa's profitability and efficiency lag behind those of Brazil's biggest non-state banks, said Luis Miguel Santacreu, an analyst at Austin Rating in Sao Paulo.

Still Struggling

Banespa's return on equity was 15.5 percent last year, compared with 20.5 percent at Banco Bradesco SA and 18.3 percent at Itau. It also has the worst customer-complaint ranking among Brazil's biggest banks, according to the central bank.

``Buying Banespa was like a snake devouring a cow -- it takes a long time to digest,'' Santacreu said.

The payoff will be worth it, says Andrea Williams, who helps manage $2.4 billion in European banking stocks, including Santander, at Royal London Asset Management.

Brazil's mortgage market may grow more than fivefold in the next seven years, reaching 10 percent of gross domestic product from 2 percent now, according to Luiz Antonio Franca, mortgage director at Itau. Brazil contributed 455 million euros to Santander's first-half earnings, or 10 percent of group profit.

Santander backed Lula before the October 2002 elections, giving 1.8 million reais to Lula's party, according to Brazil's electoral court. It also donated 1.4 million reais to Jose Serra of the Social Democracy Party. By comparison, Itau donated 3.12 million reais to Serra's party and 350,000 reais to Lula's Workers' Party.

`Critical Time'

In August of that year, Botin restricted access to Santander's research after a New York analyst recommended selling Brazilian assets as the country's bonds and currency plummeted on concern Lula would default on 1.05 trillion reais of public debt.

After Lula's victory, Botin paid a call on the new president and pledged to maintain $2 billion in trade lines at a time when international lending to Brazil had plunged 16 percent.

``Santander believed in Lula and Brazil at a critical time,'' said Alexandre Marinis, who runs Mosaico Economia Politica, a consulting firm in Sao Paulo.

In March, Miguel Jorge, Banespa's corporate affairs director, was named trade minister. Mario Gomes Toros, a former vice president for Santander in Brazil, was appointed monetary policy chief at the central bank a month later.

A spokesman for Lula didn't return calls seeking comment. Jorge declined to be interviewed, a spokesman for the Trade Ministry said. Toros's representative declined to comment.

Jorge and Botin

At Banespa, Jorge helped leaders of United Workers' Central, Brazil's biggest union grouping, devise a plan for deducting loan payments from payroll checks, slashing costs for union members, said Jose Paulo Nogueira, executive director of the ABC Metalworkers' Union.

In previous corporate posts at Volkswagen AG's factory in Sao Bernardo and Autolatina, a venture of VW and Ford Motor Co., Jorge mixed with union leaders allied to Lula, including Luiz Marinho, who is now social security minister, Nogueira said.

Botin and Jorge hugged at today's meeting between Lula and Spanish Prime Minister Jose Luis Rodriguez Zapatero.

``Is Jorge someone Lula trusts? Well, he made him a minister,'' Nogueira said. ``They've been very astute.''

Wednesday, September 12, 2007

Brazil Q2 2007 GDP

Brazil's economy expanded at the fastest pace in three years in the second quarter as lower interest rates and a currency rally fueled higher consumer spending and business investment.

Gross domestic product, the broadest measure of a country's output of goods and services, jumped 5.4 percent from a year earlier after growing a revised 4.4 percent in the first quarter or put another way gross domestic product in the April-June period expanded a seasonally adjusted 0.8 percent from the first quarter.

The Brazilian economy's year-on-year expansion in the April-through-June period was the fastest since the economy grew 7.5 percent in the second quarter of 2004.

Brazil's currency gained on the news and the real gained 0.8 percent to 1.9090 per dollar at 4:08 p.m. New York time (13-09-07), the strongest since Aug. 9 when it traded at 1.90 reais per dollar. The real has gained almost 12 percent this year, the best performer among the six major Latin American currencies.

Brazil's central bank has cut the benchmark lending rate 18 straight times since September 2005 - from 19.75 percent to 11.25 percent, fueling consumer lending, business investment and industrial output. The real has appreciated 20 percent against the dollar in that period as export revenues for Brazil's commodity exports surged.

Consumer spending in Latin America's biggest economy rose 5.7 percent in the second quarter from the same period a year earlier, the 15th straight quarterly increase, the government said. Investment rose 14 percent compared with the second quarter of 2006, while industry rose 6.8 percent, services 4.8 percent and agriculture rose 0.2 percent.

The 12-month inflation rate has accelerated since March, when it reached 2.96 percent, its lowest level since February 1999. In August, the rate climbed to 4.18 percent.

Bank lending has increased every month since February 2004, helped by falling interest rates and the increase in paycheck- backed loans, created by Lula in September 2003, the central bank said Aug. 27.

The program allows workers to borrow at lower costs because repayments are deducted directly from their wages.

Vehicle sales in Brazil have risen more than 25 percent this year as lower borrowing costs, coupled with longer maturities for car loans, fueled demand. Automakers have stretched out maturities to as long as 84 months from 36 months last year, lowering the monthly payments for borrowers.

Monday, September 03, 2007

The Real and the Trade Surplus

From Bloomberg this morning:

Brazil's Real Gains After Trade Surplus Increased in August

By Adriana Brasileiro

Sept. 3 (Bloomberg) -- The real gained as a widening trade surplus in August boosted speculation that rising dollar flows will support the local currency.

The real rose 0.4 percent to 1.9540 reais per dollar at 3:36 p.m. New York time. The yield on Brazil's benchmark zero-coupon bonds due January 2008 fell 4 basis points, or 0.04 percentage point, to 11.19 percent, according to Banco UBS Pactual SA.

``The outlook is for inflows to stay strong this year, protecting the real from external shocks,'' said Reginaldo Galhardo, currency director of Treviso Corretora, a Sao Paulo brokerage.

Brazil's trade surplus widened to $3.54 billion in August from $3.35 billion the previous month, the Trade Ministry said in a report on its Web site. It exceeded the $3.1 billion median estimate in a Bloomberg survey of 18 economists.

Exports rose to a record $15.1 billion last month from $14.1 billion in July, while imports also increased to a record $11.6 billion from $10.8 billion in July, the ministry said.