By Michael Every of Rabobank
Walking a tightrope - in high heels
The first part of today's punchy title isn't mine: it belongs to our Brazil macro-strategist Mauricio Une, who underlines in his recent note (see here) that Brazil is still on the edge of the (fiscal) abyss: it isn't being helped by US yields continuing to rise, making emerging market assets less attractive; and domestically, there was "increased volatility boosted by rumours over the risk of relaxation of fiscal rules" during a Senate vote. That was before we got news that the Brazilian Supreme Court stunningly decided former leftist president Lula is not guilty of the corruption charges he was convicted of in 2018, and is suddenly free – to contest the 2022 election on what will no doubt be a more fiscally expansionary platform than the far-right populist-but-fiscally-conservative President Bolsonaro. As one local political analyst describes it: imagine Bernie Sanders vs. Donald Trump. Which actually doesn't require that much imagination right now most places.