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Asset Management
There was a lot of noise in the air related to Europe, and to a lesser degree to China, within the financial markets early, but no additional risk selling looked to have materialized. China produced yet more anecdotal evidence of demand issues on the ground, as the National Statistics Institute reported that home prices fell in 46 out of 70 cities surveyed in April.
Finance Minister Guido Mantega announced a change in the rules for returns on new savings accounts to remove the floor to the Selic rate. This effectively removed an obstacle from the Central Bank to allow the Selic to make new record lows this year. The caderneta de poupança will now amount to 70% of the benchmark rate if it falls to below 8.5%, plus a fluctuating reference rate. Before this, savings accounts in Brazil were remunerated at 6% plus a reference rate.
This past month was one characterized by profit-taking. Since the publication of our last monthly, the S&P 500 has given up 2.5% of its value. From the peak value reached at the end of March, the retrenchment in prices amounted to a full 4.3%. Since the beginning of the year the index is still up some 6.8%. On the fixed income side, the relationship has been, as should be expected, inverse. The 10-year UST has gone from yielding 2.24% about a month ago
Inflation pressures have moderated in the past two months and the CLP has been on trend appreciation year-to-date, giving room to the BCCh to watch and wait on the evolution of the European crisis and domestically, on the ongoing dynamics of a rather volatile inflation rate. On the other side of the ledger, real GDP is expanding at an above-potential rate, wage pressures are strong, and the BCCh's statements point to the initiation of rate hikes this year, which we estimate to be delayed until September. We expect the BCCh to "fine-tune" its policy rate with a 25bps increase, taking the rate to 5.25% by that time.
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