Our leading indicator for Brazil continues to imply significantly higher growth in Brazil and the economy is starting to respond. Of course, recent positive growth surprises have taken a backseat to the increase in EM market volatility . The Brazilian real has weakened, equities have sold off and yields have risen driven by a rise in US 10y yields. That together with a hawkish central bank has added to the squeeze on economic activity.
However and despite the almost universal bearishness on Brazil, we note that coincident activity has started to turn up strongly in line with our leading indicators. This is a contrarian sign for an economy where the equity market is down 26% in USD terms since the end of May.