BRAZIL: DI Swaps Underperform As Government Prepares Food Price Measures

• RES 4: 1.2610 38.2% retracement of the Sep 26 ‘24 - Jan 13 swing
• RES 3: 1.2576 High Jan 7    
• RES 2: 1.2504/23 50-day EMA / High Jan 27 and key resistance  
• RES 1: 1.2491 High Feb 4 
• PRICE: 1.2490 @ 16:40 GMT Feb 4
• SUP 1: 1.2249 Low Jan 3   
• SUP 2: 1.2161 Low Jan 17 / 20
• SUP 3: 1.2100 Low Jan 10 and the bear trigger 
• SUP 4: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing    

Despite a recovery from Monday’s low, the latest pullback in GBPUSD highlights a bearish threat. The move down signals the end of the Jan 13 - 27 correction and note too that resistance at 1.2504, the 50-day EMA, remains intact. Furthermore, MA studies are in a bear-mode position highlighting a dominant downtrend. A continuation lower would open 1.2100, the Jan 13 low and bear trigger. A clear break of the 50-day EMA would alter the picture.           

• +10,000 SFRJ5 95.75 puts 2.0 ref 95.89
• +5,000 SFRU5 97.00/97.50 call spds, 2.0 vs. 95.99/0.06%
• +10,000 0QU5 96.50/97.00 call spd vs 3QU5 96.37/96.87 call spd spd, 0.5 net
• +5,000 SFRZ5 95.50 puts, 9.5 vs. 96.06/0.24%
• -5,000 SFRZ5 95.37/96.62 strangle, 23.0 96.07
• -10,000 SFRJ5 95.87/96.12/96.37 call flys, 4.0-3.75 ref 95.89
• -15,000 0QK5 95.25/95.50 put spds, 2.5 ref 96.09
• +5,000 SFRJ5 95.75 puts 2 ref 95.885

• Today’s data for the central government cash balance saw a budget deficit of E156.3bn in 2024 or 5.4% GDP, an improvement from the E173.3bn or 6.1% GDP in 2023 on the same cash and central government basis.
• Whilst it’s not directly compatible to national accounts basis figures used in the budget, it points to a greater directional improvement compared to the 5.4% GDP forecast for the central and state government deficit in 2024 in the October draft budgetary plan after the realized 5.6% GDP in 2023.
• This was part of the draft plan that saw a general government (i.e. incl local governments and social security) deficit of 6.1% GDP in 2024 after 5.5% GDP in 2023.
• This draft budgetary plan had pencilled in a general government deficit of 5.0% GDP in 2025 although this has since of course been lifted to a target of 5.4% GDP by the new Bayrou government having been forced through parliament without a vote on Monday. [See our political risk team’s post at 1653GMT on the fallout from this approach: Gov't To Survive 5 Feb Votes; Censure Motion Next Week Greater Threat].

• Back to the details in today’s central government cash data, the bulk of the improvement on the year came from total expenditure falling to E511.1bln vs E522.7bln in 2023.
• Total revenues also modestly increased to E357.2bn in 2024 vs E354.5bn in 2023, helped by “other tax revenues” at E67.5bn vs E65.5bn in 2023.
• The press release notes the increase in other tax revenues was "mainly due to the growth in other domestic taxes [+E2.0bln] and the solidarity levy [+E0.8bln]" though these were partially offset by a "slight decrease in net IR revenues [-E0.6bln] and the state share of net TICPE (internal consumption tax on energy products) [-E0.8bln]".
• Non-tax revenues fell to E23.2bn vs E25.1bn in 2023, mainly because of an EU RRF payment.
• Finally, special accounts recorded a deficit of E2.35bn vs the E5.1bn in 2023.