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To: Zardoz who wrote (26109)	1/13/1999 1:07:00 PM
From: Alex	Respond to of 116790

I.D.E.A. Global Focus Jan 13 1999 11:05AM CSTArchives... What to watch in Brazil Assessing, and limiting, the damage from Brazil's effective devaluation of the real is the task facing markets today. InterMoney highlights the events to watch for, and how markets are likely to react. Brazil was the powder keg sitting under world markets. Everyone knew it, and those investors with a choice kept their distance. Few will be surprised the powder keg has finally exploded. The Brazilian central bank has widened the band within which it allows the real to trade against the dollar. The real can now trade 8.2% lower against the dollar than previously, within a range of 1.20 and 1.32. Brazilian officials have been assiduously avoiding using the 'D' word. President Fernando Cardoso preferred to call the changes to the currency band 'technical modifications', rather than a devaluation of the real. The big question now is whether this move will be enough. That will depend on the response of local Brazilian investors - whether they keep their money in Brazil, or sell their local investments for dollars. The latter would increase pressure on the currency. Figures for net currency outflows will be the indicator to watch. $1.2bn left Brazil yesterday. If today's figure is considerably worse it will be a worrying sign. Outflows peaked at around $2bn last August. In the light of the effective devaluation, and the resignation of Brazil's central bank governor, today's congressional vote on four provisional fiscal reforms has gained added importance. As Felipe Garcia, Brazil analysts at IDEA puts it, passing the reforms is now 'essential' to keeping Brazil afloat. Expect news on the vote by around 21:30 GMT. A key to limiting the damage to world markets will be the response of the IMF and US Treasury - in words, if not in action. US Treasury secretary Robert Rubin yesterday said that he believed Brazilian president Fernando Cardoso was committed to fiscal reforms. Such anodyne comments won't be enough to reassure investors in the light of today's events. And unless key US and IMF officials come out with strong statements of support for Brazil, markets are unlikely to be mollified. Brazil's Bovespa plummeted 10.23% in the first 15 minutes it was open, causing trading to be suspended. On re-opening the index looked more stable, but our technical analyst expects it still has another 5% or so to fall today. Look for the Bovespa closing just above the 5,000 level today, from 5,655 at 16:20 GMT. Government bonds were also hit hard, with JPMorgan's Embi index of average brady bond yields widening from 12.84 percentage points above US Treasuries, to 14.80. Since then, however, it has started to recover, and was at 13.92 percentage points at 16:30 GMT. Look for the Embi index rising as far as 15.50 percentage points over Treasuries. US markets are also quaking. Investors looking for somewhere safe to park their money are piling into Treasuries. But the Dow is suffering and the dollar is slipping against European currencies. International banks in the US and elsewhere have lots of exposure to Brazil. US banks alone have loans to Brazil with an estimated value of over $20bn. As the real loses value, it becomes more expensive for those borrowers to pay back what they owe. It increases the chances that loans won't be paid back. Bank stocks are suffering. Dow components JP Morgan and Citigroup have both been losers, down 4% and 5.8% respectively. Anxiety about shockwaves from Brazil hitting the US economy are slamming American stocks. Within an hour of its open, the Dow is down well over 200 points, trading at 9,218. InterMoney chartists see 9,200 as a key support level. If the Dow closes below it, 8,800 becomes the average's next multi-day target. Investors who are getting out of stocks are snapping up Treasuries. They are the safe haven investment of choice. InterMoney doesn't think the yield on the benchmark 30-year bond will slip below the key 5% level. While US investors are piling into Treasuries, foreigners are likely to avoid US bonds on the grounds that the dollar is weakening, which hits their returns on dollar-denominated assets. At 15:30 GMT Wednesday the 30-year bond is up 1-19/32 at 102-3/32, where it yields 5.11%. The yield has been as low as 5.08% Wednesday. InterMoney doesn't think the yield will get below 5.05% in the next few days, unless there are further negative developments in Brazil. The dollar is losing ground against other safe-haven currencies Wednesday. The euro, the pound, and the swiss franc are the beneficiaries. At 16:00 GMT cable is trading at 1.6530, and should climb to 1.6670 in the next couple of days. Euro/dollar is climbing, and is currently at 1.1719. InterMoney thinks the rate will rise to 1.1885 or 1.1980 in the next one to three days, where it should stop climbing. Dollar/swiss is trading at 1.3545, and should fall to 1.3220 within a few sessions. I.D.E.A. : Wed Jan 13 16:41:31 1999 [GMT]