Politics should dominate price action for Brazil this week

Volatility continues to dominate price action in Brazilian assets as political turmoil remains the main driver. With so much uncertainty around the political outcome in Brazil, BRL should keep its downward trend, in an environment where the global economic outlook looks weak and commodity prices continue decreasing. Despite last week's Moody's decision about changing Brazil's credit outlook to stable, it is just a matter of time until the agency acknowledges the risks of losing IG, as assumptions look somewhat optimistic in the current environment. 

"We foresee further weakness in BRL and, as such, there are risks to our forecasts for the months ahead. In the rates space, we continue favoring steepeners as monetary policy remains very tight and term premia seem to be inconsistent with CDS pricing," notes Barclays.

Data wise, the unemployment rate for July on Thursday (consensus: 7.0%) and IPCA-15 inflation for August (consensus 0.45% m/m) should be the main economic releases during the week ahead. For the former, in SA terms, it is likely to go up from 6.4% to 6.7%, while for the latter, an increase is expected in prices that should be in line with market consensus.