Rabbinical reinforcements arrive in Argentina to step up kosher meat exports By Reuters



© Reuters. Argentina’s Foreign Minister Felipe Sola looks on during a news conference after a meeting with Brazil’s Foreign Minister Ernesto Araujo at the Itamaraty Palace Brasilia

BUENOS AIRES (Reuters) – Argentina is ready to step up exports of kosher beef following the arrival of 98 rabbis flown into the country from Israel after the government waived travel restrictions aimed at slowing the coronavirus pandemic.

Most of the rabbis arrived this week on a chartered flight from Tel Aviv, Argentina’s Foreign Ministry said in a statement on Friday.

The rabbis were needed to maintain beef exports to key buyer Israel, which has become increasingly important as exports to the European Union and China are hit by the global health crisis.

“The first thing you have to understand is the importance of exports,” Foreign Minister Felipe Sola said in the statement. “We celebrate having been able to accelerate the arrival of the rabbis to certify beef.”

Argentina is the world’s fifth largest beef exporter and Israel is the No. 3 buyer of its famously succulent cuts.

Argentina will ship 24,000 tonnes of beef to Israel in 2020, for a value of about $170 million.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Poland’s PM hopes economy will shrink by less than 4% this year By Reuters



© Reuters. FILE PHOTO: EU leaders summit in Brussels

WARSAW (Reuters) – The Polish economy could shrink by less than 4% this year, while the unemployment rate will likely remain below 10%, Poland’s Prime Minister Mateusz Morawiecki said on Saturday.

Poland has announced a rescue package worth over 300 billion zlotys ($76 billion) to help its economy survive the coronavirus crisis.

“I have a serious not only hope but also macro basis to believe that (the unemployment rate) will not be double-digit, and even that it will be lower than economists had expected a month ago,” Morawiecki told RMF radio.

“The fall in GDP expected by most financial institutions is 4%. I hope it will be lower than forecasts,” he also said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Bond investors look for Fed to justify steepening yield curve By Reuters



© Reuters. New York Stock Exchange opens during COVID-19

By David Randall

NEW YORK (Reuters) – Expectations that the global economy has dodged the worst-case coronavirus pandemic scenarios have led to a dramatic sell-off in U.S. government bonds from their record highs, pushing the yield curve to its steepest level since March.

Investors will get a chance next week to see whether the U.S. Federal Reserve agrees with their optimism. The U.S. central bank’s two-day meeting, ending on Wednesday, will be the first since April when Fed Chair Jerome Powell said the U.S. economy could feel the weight of the economic shutdown for more than a year.

The meeting will follow a surprise gain in the Labor Department’s closely watched jobs report on Friday that pushed benchmark 10-year Treasury yields to the highest since early March.

“The sell-off in the bond market in the last few weeks seems to be justified,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale (OTC:).

While the Fed could introduce additional bond-buying programs known as quantitative easing or yield-curve control measures to target short-term rates, fund managers say they expect yields will need to rise significantly to justify any intervention in the bulk of the curve. Instead, they are watching for hints that the central bank believes the worst part of the coronavirus crisis has passed.

“They are really in this transition phase,” said Eric Stein, co-director of global income and portfolio manager at Eaton Vance (NYSE:). “Markets are functioning, if not all the way back to pre-shock levels, with very strong debt issuance and market improvement, even though the real economy is incredibly weak.”

As a result, Stein is looking for signs that the Fed believes the economic rebound can support the rise in yields.

“The Fed will be OK with a slow creep higher, particularly with a backdrop of a recovery, but if it moves too much and destabilizes the recovery, there’s a reason for concern,” he said.

Ed Al-Hussainy, senior interest rate analyst at Columbia Threadneedle, expects the Fed to focus on its newly announced Main Street Lending Program to support small- and medium-sized businesses facing financial strain from the pandemic, rather than introducing significant new stimulus measures.

“The Fed is likely to communicate that there is more scope for fiscal measures but that is a very uncomfortable spot to be in,” he said. “We won’t have a clear sense of direction of the economy until well into the fourth quarter because all the sequential data now is massively positive.”

The manufacturing ISM index rose to 43.1 in May from 41.5 in April, while weekly jobless claims fell to 1.877 million from 2.126 million the week before.

“Recent economic reports in the U.S. have been uniformly weak, though not any worse than expected,” said Kevin Cummins (NYSE:),senior U.S. economist at NatWest Markets.

Eddy Vataru, lead portfolio manager at Osterweis Capital Management, said the larger risk for the Fed is that rates remain too low, making it unlikely that there will be a significant push for yield curve-control measures.

“We can now discredit the worst outcomes of the virus. The sentiment around the risks around the virus have really changed,” he said, pointing to declining infection and fatality rates in coronavirus hot spots such as the New York City region.

As a result, he is moving into corporate debt and mortgage-backed securities and shying away from Treasuries, which he said have “no investment value” at their current yields.

“At the end of the day, we have a ton of stimulus, both fiscal and monetary, and the markets have reacted to it,” he said.



Brazil’s real surges through 5.00 per dollar, chalks up best week since 2008 By Reuters



© Reuters.

By Jamie McGeever

BRASILIA (Reuters) – Brazil’s real surged on Friday through 5.00 per dollar for the first time since March, sealing its biggest weekly rise in nearly 12 years after surprisingly strong U.S. employment data sparked a buying spree in riskier, beaten down assets.

The real, long the pariah on international foreign exchanges and one of the worst performing currencies this year, rose 7% against the dollar this week, its strongest performance since October 2008 and one of the biggest weekly gains on record.

(GRAPHIC: Brazil real – spot: https://fingfx.thomsonreuters.com/gfx/mkt/rlgpdkqwmvo/BRLSPOT.png)

(GRAPHIC: Brazil real – weekly change: https://fingfx.thomsonreuters.com/gfx/mkt/oakpeqjgkpr/BRLWEEKLY.png)

The real closed up 3% on Friday, hitting an intraday high of 4.9340 per dollar () as traders who have been short the currency scrambled to cover their positions and cut their mounting losses as the rebound gathered pace.

The improving global picture, greater investor appetite for risk and a calmer domestic political scene boosted the real’s upswing. It has now rebounded more than 20% from its record low near 6.00 per dollar in mid-May.

“The real may trade better than peers in an emerging-market friendly environment, considering heavy dollar long positions,” Citi strategists wrote in a note on Friday.

“People are short emerging market FX, and within emerging markets they are underweight the real,” one hedge fund manager in Sao Paulo said.

Figures on Friday showed that the U.S. economy unexpectedly added jobs in May after suffering record losses in April, a sign that the downturn triggered by the coronavirus pandemic may be over.

This sparked a widespread rally across equity, credit and emerging markets, and a sell-off in safe-haven U.S. Treasury bonds.

Meanwhile, Commodity Futures Trading Commission data on Friday showed that funds and speculators increased their net short Brazilian real position slightly to 12,003 contracts in the latest week, the largest net short position in two months.

But that is about a quarter of the size of the short position held in early March, indicating that positioning is still fairly light.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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OPEC, Russia meet to extend record oil cuts, push for compliance By Reuters



© Reuters.

MOSCOW/DUBAI/LONDON (Reuters) – OPEC and its allies led by Russia meet on Saturday to approve extending record oil production cuts and to push countries such as Iraq and Nigeria to comply better with existing curbs.

The producers known as OPEC+ previously agreed to cut supply by a record 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Cuts have been due to taper to 7.7 million bpd from July to December.

OPEC+ sources have said Saudi Arabia and Russia had agreed to extend record cuts throughout July although Riyadh would prefer to see cut extended throughout August.

(GRAPHIC – OPEC+ Cuts for May and June: https://fingfx.thomsonreuters.com/gfx/editorcharts/yxmvjorrwpr/eikon.png)

Global benchmark Brent crude (), which slumped below $20 a barrel in April, rose nearly 6% on Friday to trade at a three-month high above $42.

Saturday’s video conferences will start with talks between members of the Organization of the Petroleum Exporting Countries at 1200 GMT, followed by a gathering of the OPEC+ group at 1400 GMT, OPEC said on Friday.

OPEC sources said an extension of cuts was contingent on compliance as countries that produced above their quota in May and June must compensate by cutting more in future months.

Iraq, which had one of the worst compliance rates in May, according to a Reuters survey, agreed to additional cuts, OPEC sources said. [OPEC/O]

(GRAPHIC – OPEC May Production: https://fingfx.thomsonreuters.com/gfx/editorcharts/nmopakdaopa/eikon.png)

It was not clear how exactly Iraq would cut output and agree with oil majors working in the country to curtail production. Nigeria said it would also aim to reach full compliance.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Colombia sees national income falling by $6.6 billion this year By Reuters




By Carlos Vargas and Nelson Bocanegra

BOGOTA (Reuters) – Colombia’s government estimated national income could fall by 23.7 trillion pesos ($6.58 billion) this year, as the coronavirus lockdown and low oil prices batter the Andean country’s economy.

The country could issue international and local bonds or use an available line of credit with the International Monetary Fund to help make up for lost income, the government said in a Thursday decree published on Friday.

“Those resources will be monetized to settle the lack of cash flow in pesos,” the decree said.

Income will fall because the months-long coronavirus quarantine halted much of the economy, the decree said. Though many sectors are gradually reopening, tax collection – especially sales tax – is expected to take a significant hit.

The Finance Ministry has estimated the economy will contract by some 5.5% this year.

Colombia could more than make up for the fall, raising some 23.85 trillion pesos from a variety of sources, the decree said.

Some 15.54 trillion pesos can be raised via international bond issues, the decree said, another 2.64 trillion pesos via issues of so-called TES local bonds and 124 billion pesos from funds from .

Other sources could provide the remaining 5.54 trillion pesos. Last month the IMF approved a two-year flexible credit line of about $10.8 billion for Colombia, replacing an expiring facility.

Bancolombia (NYSE:), CitiBank and BBVA (MC:) will structure an issue of 30-year TES, director of public credit Cesar Arias said, adding the government hopes to raise at least 2 trillion pesos with the paper.

“We want to focus on launching the first 30-year Colombian TES bond, with a mind to expand those obligations with time and seek the best possible rates,” Arias said in a statement on Friday.

Colombia issued $2.5 billion in 2031 and 2051 international bonds on Monday, after receiving interest for $13.3 billion.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Trump administration orders Marriott to cease Cuba hotel business By Reuters


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© Reuters. FILE PHOTO: The hotel Four Points by Sheraton is seen in Havana

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By Sarah Marsh

HAVANA (Reuters) – The Trump administration has ordered Marriott International (NASDAQ:) to wind down hotel operations in Communist-run Cuba, a company spokeswoman told Reuters, extinguishing what had been a symbol of the U.S.-Cuban detente.

Starwood Hotels, now owned by Marriott, four years ago became the first U.S. hotel company to sign a deal with Cuba since the 1959 revolution amid the normalization of relations pursued by former President Barack Obama.

But the administration of President Donald Trump has unraveled that detente, tightening the decades-old U.S. trade embargo on Cuba and saying it wants to pressure the island into democratic reform and to stop supporting Venezuelan President Nicolas Maduro.

The approach could help Trump bolster support in the large Cuban-American community in Florida, a state considered vital to his re-election chances in November.

A company spokeswoman said the U.S. Treasury Department had ordered the company to wind down its operation of the Four Points Sheraton in Havana by Aug. 31. It would also not be allowed to open other hotels it had been preparing to run.

A U.S. Treasury Department spokesperson said it could not comment on specific licensing matters, but that the administration aimed to prevent Cuba’s military from using revenue from tourism to “oppress its own people”,

The Four Points Sheraton in Havana, like swaths of the tourism sector and economy at large, is controlled by the commercial arm of the Cuban military.

“In 2017, Trump promised he would not disrupt existing contracts U.S. businesses had with Cuba,” wrote William LeoGrande, a Cuba expert at American University in Washington, on Twitter. “Promise made, promise broken.”

The news comes two days after the U.S. State Department expanded its list of Cuban entities with which Americans are banned from doing business to include the military-owned financial corporation that handles U.S. remittances to Cuba.

U.S. sanctions have further crippled an economy already struggling with a decline in aid from leftist ally Venezuela and the end of hard-currency generating Cuban medical missions in Brazil and elsewhere.

Philip Peters who runs the FocusCuba business consultancy and has advised Marriott, said no good had come from a lifetime of U.S. sanctions that separated the U.S. and Cuban peoples, harmed Cuba’s economy, and limited American influence in Cuba.

“Marriott .. will hopefully return to do business in Cuba, along with others, to encourage American travel and to help Cuba prosper and integrate into the global economy,” he said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



U.S. considers blacklisting more oil tankers for trading with Venezuela, sources say By Reuters


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© Reuters. FILE PHOTO: Oil facilities are seen on Lake Maracaibo in Cabimas

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LONDON/NEW YORK (Reuters) – The United States is considering imposing sanctions on at least 40 additional foreign oil tankers for trading with Venezuela, four shipping sources told Reuters on Friday.

The sources said the potential sanctions on the various ships could be imposed imminently, although no decision had been taken yet.

The vessels that could be targeted included 25 supertankers, which can each carry a maximum of 2 million barrels of oil, and 17 smaller vessels, the sources said.

There was no immediate comment from the U.S. Treasury Department. The White House and U.S. State Department did not immediately respond to requests for comment.  

U.S. officials have steadily added tankers and shipping companies to the blacklist over their dealings with Venezuela since Washington imposed sanctions, and have warned that more will be targeted if they fail to abide by sanctions.

Earlier this week the U.S. Treasury said it had imposed sanctions on four shipping firms for transporting Venezuelan oil, the latest escalation in Washington’s effort to oust socialist President Nicolas Maduro by cutting off the OPEC nation’s crude exports.

Washington imposed sanctions on Venezuelan state-run oil company Petroleos de Venezuela in early 2019, shortly after the United States and dozens of other countries accused Maduro of remaining in power illegitimately after a 2018 election that was widely viewed as fraudulent.

Maduro blames the sanctions for Venezuela’s woes and accuses Washington of seeking to oust him in order to control the country’s vast crude reserves.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



U.S. labor market unexpectedly improves; recovery years away By Reuters


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© Reuters. A man speaks with a library worker after receiving an unemployment form, as the outbreak of coronavirus disease (COVID-19) continues, in Miami Beach

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By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy unexpectedly added jobs in May after suffering record losses in the prior month, offering the clearest signal yet that the downturn triggered by the COVID-19 pandemic was probably over, though the road to recovery could be long.

The Labor Department’s closely watched employment report on Friday also showed the jobless rate falling to 13.3% last month from 14.7% in April, a post World War Two high. It followed on the heels of surveys showing consumer confidence, manufacturing and services industries stabilizing. Businesses have reopened after shuttering in mid-March to slow the spread of COVID-19.

“The country has turned the corner from the pandemic and the recession it created for now, but all the workers who lost their paychecks will find it difficult to regain their place in society as many of these jobs are gone forever,” said Chris Rupkey, chief economist at MUFG in New York.

“It took years for the economy to grow enough to find jobs for those unemployed in the last recession, and it will take years again this time to do the same.”

The survey of establishments showed nonfarm payrolls rose by 2.509 million jobs last month after a record plunge of 20.7 million in April. Economists polled by Reuters had forecast payrolls falling by 8 million jobs. They had expected the survey of households to show the unemployment rate jumping to 19.8%.

President Donald Trump, who had a turbulent week amid nationwide protests over police brutality and racial inequality, quickly took credit for the surprise labor market turnaround.

“Really Big Jobs Report. Great going President Trump (kidding but true)!” Trump wrote on Twitter.

But the improvement was uneven. The unemployment rate for blacks increased one-tenth of a percentage point to 16.8%. In contrast, the jobless rate for whites fell to 12.4% from 14.2% in April. Economists believe the unemployment rate peaked in May, but see it remaining above 10% when Americans head to the polls on Nov. 3.

Stocks on Wall Street rallied on the report. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

DEEP HOLE

Even with May’s rebound, the hole is deep. Part-time workers accounted for two-fifths of the increase in employment. Payrolls are nearly 20 million below their pre-COVID-19 level. The unemployment rate has risen 9.8 percentage points and the number of unemployed is up 15.2 million since February.

The Labor Department’s Bureau of Labor Statistics, which compiles the employment report, also noted a continuing problem with misclassification by respondents. A large number of people misclassified themselves as being “employed but absent from work.” Without this misclassification, the May unemployment rate would have been about 16%.

A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dipped to 21.2% in May from 22.8% in April.

The sharp rebound in employment is in stark contrast to a persistently high number of people filing weekly claims for jobless benefits.

Economists are split on whether the swift turnaround in the labor market was because of the government’s Paycheck Protection Program, part of a historic fiscal package worth nearly $3 trillion, offering businesses loans that can be partially forgiven if used for employee salaries. The Federal Reserve has also thrown businesses credit lifelines.

“There are some industries and many firms that simply won’t come back, and therefore many jobs that also won’t come back,” said Randall Kroszner, a former Fed governor and now an economics professor at the University of Chicago Booth School of Business.

(Graphic: Which sectors gained jobs in May?, https://fingfx.thomsonreuters.com/gfx/mkt/dgkvlwarjpb/Pasted%20image%201591362507986.png)

Employment in May was boosted by restaurants and bars, which added 1.4 million jobs after losing 6 million jobs in April and March. But payrolls continued to decline in the accommodation industry in May, with another 148,000 jobs lost.

Hiring in the construction industry increased by 464,000 jobs last month, recouping about half of April’s decline. There were also gains in employment in education and health services, retail trade, manufacturing, professional and business services, financial activities and wholesale trade.

But government payrolls dropped by 585,000 in May, with the declines in state and local governments, whose budgets have been crushed in the fight against COVID-19. There were more job losses in the information, mining, transportation and warehousing industries.

The labor force participation rate, the proportion of working-age Americans who have a job or are looking for one, rose to 60.8% last month from 60.2% in April, which was the lowest rate since January 1973. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 52.8% in May from a record low 51.3% in April.

With the rebound in lower-wage industry jobs, average hourly earnings fell 1.0% after shooting up 4.7% in April. That lowered the annual increase in wages to 6.7% in May from 8.0% in April. The workweek averaged 34.7 hours, up from 34.2 hours in April.



Brazil, Mexico currencies both rebound but real has more legs than peso By Reuters


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© Reuters. Mexican peso banknotes are pictured at a currency exchange shop in Ciudad Juarez

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By Jamie McGeever and Abraham Gonzalez

BRASILIA/MEXICO CITY (Reuters) – The Brazilian real and Mexican peso have both rebounded strongly in recent weeks, but their rallies are starting to diverge with the peso running out of steam and the real gaining momentum.

The two heavyweight Latin American currencies were pressured this year as their countries’ central banks slashed interest rates, historically deep recessions loomed on the horizon and investors dumped emerging market assets due to the coronavirus crisis.

Now, both currencies have surfed the wave of improving global market sentiment and appetite for risky assets, with trillions of dollars of monetary and fiscal stimulus lifting hopes for a quick post-pandemic economic recovery.

The peso’s selloff faded earlier, and it has appreciated 15% against the U.S. dollar since mid-April. Brazil’s real hit a record low in mid-May but has rebounded more than 20%.

The real on Friday surged through 5.00 to the dollar for the first time since March, headed for its biggest weekly gain since 2008.

Two charts suggest potential short-term paths for each currency.

(Graphic: Brazil real vs EM FX, https://fingfx.thomsonreuters.com/gfx/mkt/xklpygbkbpg/EMFX2.png)

(Graphic: Brazil real, Mexico peso correlation, https://fingfx.thomsonreuters.com/gfx/mkt/gjnpwybwqpw/BRLMXN-CORR.png)

The first shows their performance this year relative to other key emerging currencies. The real has weakened more than its peers, with room to recover further. Over the past 12 months, its relative depreciation has been has even steeper.

“It has underperformed big time and would be part of any broad dollar weakness rally,” said Alexandre Song, portfolio manager at Macro Capital in Sao Paulo.

“The laggards before are the winners now. No one is long the real, it is widely under-owned,” he said, adding that a sustained break through 5.00 per dollar could accelerate the move ().

Analysts said the erosion of the real’s yield advantage should be fully discounted by now. The Brazilian central bank is expected to cut its benchmark Selic interest rate by up to 75 basis points this month, but has indicated this will be the last cut.

That puts the real in pole position if the assets most shunned when markets tumbled are due for a sharper rebound, as many analysts expect.

Brazil’s economic and financial position is far from stellar. The economy is poised for its biggest-ever annual slump of more than 6%, according to consensus forecasts, and the government’s deficit and debt will balloon to record levels.

But Brazil’s $3.5 billion dollar-bond sale this week, its first since 2019, drew huge demand from investors, suggesting foreign capital is ready to return.

Central bank figures this week showed Brazil posted a net foreign exchange inflow in May of $3.1 billion, the first inflow since July last year.

PESO LOSING MOMENTUM

Mexico’s economic and financial position has also weakened, but policymakers fear that added pressure on public finances could lead to a sovereign credit downgrade. Mexico could lose its investment grade rating, which would probably force many investors to sell Mexican sovereign bonds because institutional mandates require investment quality assets in their portfolios.

This is what initially happened to state-owned Pemex’s bonds after Moody’s (NYSE:) in April became the second ratings agency to cut the firm’s debt rating to ‘junk’ status.

According to central bank data, more than $12.5 billion fled local debt markets between March and April. That would almost certainly increase if Mexico was cut to ‘junk’.

The second chart, a simple 30-day correlation, shows the two currencies have started to diverge in recent weeks. The peso has rebounded from a record low 25.74 per dollar in early April , but has lagged the real.

A recent central bank survey showed investors expect the peso will end this year at 23 per dollar, weaker than the 21.90 it was trading at on Thursday. The survey also shows the economy will shrink by 8% this year, more than the consensus forecast for Brazil.

The latest biweekly survey by Citibanamex shows nine out of 10 analysts expect the dollar to be above 22.00 pesos by year end, while six of 10 expect it to be above 23.00 pesos.

(Graphic: Mexican peso, https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrleqlve/MXNSPOT.png)

The peso’s loss of momentum in recent days comes as the dollar approaches the 100-day moving average, a technical level likely to act as a magnet for traders’ buy and sell orders. A break below could accelerate the dollar’s decline, but failure to do so could resume the uptrend.

Juan Francisco Caudillo, technical analyst at Monex, recommends that his clients buy dollars, characterizing the U.S. currency’s recent decline as a “momentary correction”.

“These levels are beginning to be attractive to consider accumulating dollars,” agreed Santiago Leal, fixed income and foreign exchange rate strategist at Banorte.