Despite Brazil’s economic challenges amid rising global interest rates and recession fears, the Direxion Daily MSCI Brazil Bull 2X ETF (BRZU ) is up about 10% year-to-date, but fiscal factors will remain a key mover moving forward.
Speaking of interest rates, Brazil’s central bank, like most around the world, has been wrestling with interest rate policy without upsetting economic growth in the process. There are signs that inflation is starting to dissipate, which should give bullish Brazil traders something to cheer about.
“Brazil’s annual inflation has eased to the lowest since 2020, intensifying a months-long public debate over the convenience of such restrictive monetary policy,” Bloomberg News reported.
Another interesting narrative to watch in Brazil will be the newly elected 39th president of Brazil: President Luiz Inacio Lula da Silva. The first year of a president’s term makes for potential market moves in that it sets the tone of what could potentially come for the broader economy in Brazil.
Apparently, Brazil’s new president is already giving the central bank a verbal flogging, saying that high interest rates are helping to spur unemployment.
“In his first four months in power, Lula has repeatedly attacked the central bank, saying high borrowing costs fan unemployment,” Bloomberg reported. “His increased pressure spilled over to two recent congressional hearings where Campos Neto defended policymakers’ views, saying core gauges that strip out volatile items are still running hot.”
As mentioned, central banks around the globe are dealing with how to best raise interest rates without stifling economic growth. The recent data on inflation easing could be a sign that fewer rate hikes or even rate cuts could be forthcoming, which should prove bullish for Brazilian equities.
“A key question is whether the government’s fiscal framework proposal prompts policymakers to adopt a less hawkish tone in their post-meeting statement. We think it will," noted Adriana Dupita, Latin American economist.
Doubling Brazil Exposure
If Brazil’s economic growth can continue in spite of central bank tightening, it can help BRZU’s case. Bullish traders can use the fund to play off their bullish vibes for the largest economy in Latin America with double the exposure.
BRZU essentially gives traders 200% exposure to the MSCI Brazil 25/50 Index. The index measures the performance of the large- and mid-capitalization segments of the Brazilian equity market, covering approximately 85% of the free float-adjusted market capitalization of Brazilian issuers.
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