EM LATAM CREDIT: Brazil: Tariffs: State of Negotiations:
(BRAZIL; Ba1/BB/BB)
From our macro analyst
* Local focus remains on Brazil's prospects of securing a trade deal with the US ahead of the August 1st deadline - after which 50% tariffs will apply on Brazilian goods trade with the US. Earlier this week, a Brazilian mission to the UN were looking to extend their stay in order to work toward a trade framework, however Folha reports that representatives of Brazilian companies have been unsuccessful in securing meetings with either Lutnick or Rubio in the past few days.
* Communication is ongoing at higher levels, however, with VP Alckmin in negotiations with Commerce Secretary Lutnick, with the admin's priorities on securing exclusions for key trade items including oranges and coffee, according to sources. Other key terms include an exclusion for Embraer given the frequency of trade in both directions that company conducts. Embraer also employ 2,500 in America and have pledged to open a US factory should the company receive orders from the US.
* Possibly more consequentially, Alckmin is looking to secure a delay in the tariff start date from the Friday to an unspecified date in the future - similar to the agreement expected to be reached in China.
* Haddad spoke with local reporters after the close yesterday - confirming that the government have established talks with US representatives and that the contingency planning for the Brazilian economy has been presented to Lula - but the government will await the final word of Trump before enacting the program. Haddad is to be interviewed again today by CNN Brasil at 3pm local time / 1900BST.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
