Brazil’s faltering recovery, Argentina’s debt crisis

Data due next week are likely to show that Brazil’s economy stagnated in Q2, and the early evidence suggests that the economy remained weak at the start of Q3. A 50bp interest rate cut at the next Copom meeting is looking likely. An IMF team will travel to Buenos Aires in the coming days and we’ll watch closely for any clues about their stance on debt sustainability. Ultimately, we think the IMF will have to deem the public debt unsustainable, which is one potential trigger for a restructuring.