Brazil’s economy expanded by 1.1% quarter on quarter in the first quarter, beating expectations of 1.0%. The outturn points to firmer near-term momentum at the start of the year, with growth running slightly ahead of market forecasts.
The release adds to evidence of resilience in domestic activity over the period, as measured by gross domestic product. With the quarterly result exceeding the consensus estimate by 0.1 percentage points, attention is likely to turn to how growth evolves through the next quarters.
Implications For Brazilian Assets And Equities
The stronger-than-expected Q1 GDP figure suggests underlying resilience in the Brazilian economy. We see this as a catalyst to break the recent stagnation in local assets. Our immediate focus will be on bullish positions in the Ibovespa index, which has been lagging other emerging markets this year.
The Ibovespa has been trading in a tight range near 125,000 for weeks, and this data could spark a rally toward the 130,000 level. We are looking at buying out-of-the-money call options on the EWZ ETF with July expirations. This provides leveraged upside exposure while defining our risk in what remains a volatile market.
Rate Policy, FX, And Derivatives Strategies
This growth reduces the probability of further cuts to the Selic rate, which the central bank has held at 9.5% amid inflation concerns running near 4%. A more hawkish stance should lend support to the Brazilian Real. We are considering short positions on USD/BRL futures, as a break below the key 5.00 level now seems more likely.
While our directional view is bullish, we expect implied volatility to increase in the near term as the market digests this new information. Selling short-dated, cash-secured puts on major Brazilian stocks like Petrobras or Vale could be an effective way to collect premium. This strategy benefits from either a rising or sideways market.
