EM LATAM CREDIT: Brazil: Bolsonaro Convicted, What's Next - Negative
(BRAZIL; Ba1/BB/BB)
A simple majority 3-2 out of a 5 justice panel will likely be achieved with Brazil Supreme Court justice Carmen Lucia planning to vote to convict ex-President Bolsonaro of being part of a criminal organization, according to Reuters and local news outlet Valor. The official vote is imminent.
We await President Trump's reaction as he already has sanctioned the presiding judge Moraes, cancelled Visas for all the supreme court judges and slapped on a 50% tariff on all Brazil imports into the U.S.
Cristiano Zanin was still left to vote but given he was Lula's personal lawyer and also helped to run his 2022 presidential campaign it is likely he will vote to convict as well. Moraes and Dino already declared their intent to vote to convict.
With only Fux deciding not to convict due to believing the case should not have even been brought before the Supreme Court yet, that would leave a 4-1 vote and not much chance the entire the rest of the court would have any say in the matter.
The next step is moving on to deciding the penalty. Meanwhile, the defendants would not go to prison until appeals are completed.
Brazil sovereign bonds have not been affected by this trial or the tariffs so far. BRAZIL 54s were last quoted T+243bp, 26bp tighter since June 30th and 54bp tighter YTD.
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EURJPY TECHS: Trend Structure Remains Bullish
- RES 4: 177.08 2.000 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 3: 175.43 High Jul 11 ‘24 and a key medium-term resistance
- RES 2: 174.86 1.764 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 1: 173.97 High Jul 28 and the bull trigger
- PRICE: 172.76 @ 16:03 BST Aug 12
- SUP 1: 169.73/45 Low Jul 31 / 23.6% of the Feb 28 - Jul 28 bull leg
- SUP 2: 169.71 50-day EMA
- SUP 3: 168.46 Low Jul 1
- SUP 4: 167.46 Low Jun 23
A bullish trend condition in EURJPY remains intact and for now the recent move down is considered corrective. Key support to watch lies at the 50-day EMA at 169.62. A clear break of the EMA is required to highlight a stronger short-term bearish threat. Moving average studies remain in a bull-mode position highlighting an uptrend. A break of the Jul 28 high of 173.97, would resume the bull cycle.
US FISCAL: Federal Deficit Up 7% Y/Y With 2 Months To Go In Fiscal Year
Treasury reported a $291.1B federal budget deficit in July, larger than the $239B shortfall expected by Bloomberg consensus but almost exactly in line with the Congressional Budget Office's previously published $289B estimate.
- As MNI noted previously, while the year-to-date deficit is up 7% Y/Y to $1.629T with two months remaining in the 2025 fiscal year (which runs Oct-Sep), compared with $1.517T in the same period of FY2024, the difference is smaller when adjusting for timing changes.
- CBO estimated a $37B wider deficit when accounting for these changes, vs $109B "actual". The implied adjusted rise in the deficit is around 2% Y/Y, tracking lower than nominal GDP growth over that period.
- YTD revenue is up 6.4% Y/Y ($4.346T), with expenditure up 6.7% ($5.975T).
- At the start of 2025, CBO estimated a $1.9T deficit this fiscal year which remains plausible with August typically seeing a large deficit ahead of a better outturn in September in part on tax receipts, though looks on the high side at this point.
- That implies the FY2025 deficit looks closer to coming in below the 6.4% of GDP posted in FY2024, though is widely expected to re-expand in FY2026 largely on "One Big Beautiful Bill" effects.
- CBO will publish the Monthly Budget Review with its final projection next month.
COMMODITIES: WTI Falls, Gold Steady, Copper Bounces
- WTI has lost ground during US hours to be on track for its lowest close since early June. The EIA’s short-term energy outlook showed an upward revision in the expected supply surplus for 2025.
- The EIA now sees a supply surplus of 1.7m b/d this year, compared to a previous forecast for a 1.1m b/d surplus.
- WTI Sep 25 is down by 1.2% at $63.2/bbl.
- WTI futures remain below the 50-day EMA at $65.15, which keeps short-term momentum pointed lower. The clear break exposes $58.17, the May 30 low.
- Meanwhile, spot gold has edged up by 0.2% to $3,349/oz, with the yellow metal trading in a narrow range as US CPI data came in broadly in line with expectations.
- For now, a bull cycle in gold that started Jun 30 remains intact. Key near-term resistance is $3,439.0, the Jul 23 high.
- However, the yellow metal has previously traded through support at $3,334.0, the 50-day EMA. A clear break of this level would signal scope for a deeper retracement and expose the next key support at $3,248.7, the Jun 30 low.
- Elsewhere, copper has bounced by 1.9% to $452/lb, bringing the red metal to its highest level since July 31.
- However, copper remains well below the Jul 30 high, which cancels the recent bullish theme and instead highlights a bearish threat.
- A continuation lower would signal scope for a test of key support at $411.75, the Apr 7 low. Initial resistance to watch is at $497.25, the Jul 8 low.
