EM outlook bleak as S&P downgrade Brazil to Junk – TDS

By FXStreet FXStreet (Delhi) – Cristian Maggio, Head of Emerging Markets Strategy at TD Securities, suggest that the first cold shower of the day is the S&P downgrade to junk of Brazil which is likely to tamper the outlook of all emerging markets.

Key Quotes

“It wasn’t unexpected, but the combination of a downgrade and the affirmation of the negative outlook contributes to giving a much bleaker picture of the future of the country than one would have expected.”

“You need two rating agencies to move Brazil to junk before its bonds are removed from the investment grade indices and investors react to that by unwinding passive positions, but every further step in that direction increases the overall risks and causes all other investors to pre-empt further deleveraging of positions.”

“So expect a very bad opening in Brazil today with USDBRL resuming its upward march towards. Market chatter is a level around 3.90 at opening, but at this stage a 4.0 handle shouldn’t be taboo anymore.”
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Source:: FX Street