Brazil is junk – TDS

By FXStreet Analysts at TD Securities noted that Brazil has been mauled by Moody’s; and the market shrugged.

Key Quotes:

“Moody’s did the expected and finally became the third major rating agency to downgrade Brazil to junk status, with its decision to move Brazil to a Ba2 rating from a Baa3 rating. The ratings agency also affirmed the negative outlook, suggesting further steps down are likely. While this was a fairly well digested event by the market, that only led to temporary BRL weakness, the two-notch downgrade did send a strong message on the rate of deterioration in both the fiscal and political dimensions of the Brazilian economic landscape.

There was less at stake with the downgrade given the previous two rating agencies had already bestowed junk status, though Finance Minister Barbosa suggested that this would not change the government’s plans to provide a fiscal consolidation effort and reform in the coming months. However, the possibility of something significant enough to stabilize debt-to-GDP dynamics within the next year is dubious. The two-notch downgrade builds in the expectation of further fiscal and political deterioration, and the statement by Moody’s suggested little possibility of a reversal, and indeed the negative outlook suggests that the risk of further …read more

Source:: FX Street