Bolsonaro Tackles Brazil’s Pension 👊 Aussie Dollar Finds Its Footing 😬

1. Bolsonaro Tackles Brazi’ls Pension

Brazilian President, Jair Bolsonaro, has pledged to do what his precessors all failed to do by addressing the massive Greece-like hole in the country’s public finances….Best of luck Mr. Bolsonaro, you may need it!

The aim is to plug a roughly $270bn public finance hole which is on the brink of becoming entirely unsustainable. Many leaders before him have made efforts to achieve this goal, but all fallen overwhelmingly short of the mark. So what’s the angle for the market?

Investors are welcoming the strategy, but will be watching closely for any concrete evidence of progress and by how much the $270bn target gets watered down over time. As an emerging market economy, Brazil has an immense amount of potential and is currently seen as one of the most attractive BRICS nations.

So far, Bolsonaro’s plans for reform have been labelled as “pretty optimistic” with many doubting they would get through congress in their current form. Currently it calls for an increase in taxation for the wealthy, a higher retirement age and new savings mechanisms for workers.

Domestic equity markets also reacted with slight uncertainty, closing lower alongside the currency. Positive developments in congress and beyond could unlock serious growth for the country, but the process will be long and arduous. Nevertheless, it’s a step in the right direction. Let’s see how it unfolds.

2. Aussie Dollar Finds Its Footing

The Aussie Dollar stabilised this morning after dropping more than 1% to a 10-day low. The slide came in response to fears that a Chinese port would ban its coal exports, but the government managed to stem the flow for now by downplaying the incident.

In what is believed to be a political move by the Chinese government, Australia’s coal exports have been targeted for an indefinite ban as part of a strict new regime of quotas. An uneasy feeling had been brewing for a number of weeks with significant delays holding up the movement of Australian coal before China finally put the hammer down yesterday with the ban.

With Coal being Australia’s most valuable export, Trade Minister Simon Birmingham has around $64bn reasons to be worried about the future of its coal industry. More importantly, as Australia’s most important export partner, a souring in relations between the two nations would represent a far more pressing problem with the Aussies taking a serious hit.

BHP’s CEO, Andrew Mackenzie, has spoken out against the idea of the ban being politically motivated, but did warn against volatility in the coal market and Aussie Dollar, should the spat escalate any further. While the Dollar may have stabilised briefly this morning, more bad news could bring more downside for the currency Down Under.

 

Today we are watching…

1. AutoNation (#autnat)

US auto retailer, AutoNation, has had a rather bumpy week ahead of its earnings report, sliding 2.9%. The medium-term trend has been slightly better since December, rising 15%, but remains down 26.87% over a 52 week period. With a number of investment firms downgrading their ratings of the company ahead of today, things are looking questionable for Autonation’s chances of an earnings beat today. The consensus EPS estimate is $1.15 (+12.8%) on revenue of $5.56bn (-2.2%).

2. Pinnacle West Capital (#pinnacle)

Pinnacle west has had an excellent run of form leading up to its earnings today, rising 8.5% after a brief sell-off in December. The company has experienced positive consumer growth, coupled with disciplined cost management, which has managed to boost margins comprehensively. Increases in housing permits alongside job, income and customer growth in the Metro Phoenix area is also set generate solid demand for the firm going forward.

 

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