Brazil: FX and Capital Markets Highlights of the Week

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1 Brazil: FX and Capital Markets Highlights of the Week Monday, May 11, 1 International Market Reopens for Brazilian Issuances Brazilian currency appreciated again last week. Notwithstanding some depreciation early in the week, the approval of fiscal measures and weaker U.S. labor market figures led the real to strengthen later on. The exchange rate closed the week at.97 reais per U.S. dollar, up by 1.3% from the previous week s closing price and in line with its peer currencies (Charts 1,, 3 and ). Central bank started to roll over contracts expiring in June. The monetary authority started to roll over $9.7 billion in swap contracts expiring in June, at a pace of,1 contracts per day. If this pace is sustained until the end of the month, the central bank will roll over % of the total batch and will decrease its short position in FX swaps by $1.9 billion (Charts and ). Currency flow was quite positive in April. The currency flow was positive by $13.1 billion in April, led by $1 billion in financial inflows. This was the biggest inflow of contracted currency for April since the beginning of the historical series in 19 (Charts 7 and ). One new foreign issuance last week. In the last week, the international market reopened for Brazilian corporate issuances. No Brazilian issue had been placed abroad since January. A cement company offered $. million in bonds due in (Chart 9 and table). Foreign flows to the stock market were positive in April and remain positive in May. Foreign flows to the stock market were positive by $3. billion in April. The same trend is holding in May, albeit with thinner inflows ($3 million) (Chart 1). Foreign investors reduced their long FX derivatives positions. During the past week, non-resident investors reduced their long FX derivatives positions (especially dollar futures) to $39. billion. Meanwhile, institutional investors and banks increased their positions to $.9 billion and $3. billion, respectively (Charts 11, 1, 13 and 1). Please refer to the last Page of this report for important disclosures, analyst and additional information. Itaú Unibanco or its subsidiaries may do or seek to do business with companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the single factor in making their investment decision.

2 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-1 Feb-1 Mar-1 Apr-1 May-1 FX and Capital Markets Monday, May 11, Real: Weekly Evolution 1 Peer-currencies Weekly Performance 3. MXN; - 1.% appreciation CLP; - 1.1% AUD; -.3% Daily Trading Range reais per dollar.97 -May -May -May 7-May -May Currencies Volatility* *3-day moving st. dev. of log-differences BRL AUD JPY EUR MXN BRL; - 1.3% COP; - 1.1% -.% -1.% -1.% -.%.% Volatility: historic x implied 3 Historic* Implied** 3 1 USD billion 1 Outstanding FX Swaps by Maturity -1 - Jan-1 May-1 Sep-1 Jan-1 May *3-day moving st. dev. of log-differences **1 month implied ATM volatility Source: Bloomberg,Itaú Net increase in FX swap position USD billion (+) = increase in Central Bank short position May/1: Forecasted keeping the same pace of the rollover previously announced Source: BCB, Itaú Source: BCB, Itaú Page

3 FX and Capital Markets Monday, May 11, Daily Flows Trade-related Financial million dollars 7-Apr -Apr 9-Apr 3-Apr 7 Exchange Rate Flows Financial** Trade related -1 **services-related and capital flows Apr-13 Oct-13 Apr-1 Oct-1 Apr-1 Source: BCB and Itaú Source: BCB and Itaú Securities Issuances in the External Market 3 Net Foreign Flows to Brazilian Equities 9 1 Spot market Index futures flows million dollars 1 - Nov-13 Feb-1 Source: Valor Econômico and Itaú -1 Source: BMF, Bovespa e Itaú Issuer Maturity Value (million $) 1 Cement industry (1). Source: Valor Econômico and Itaú (1) Equivalent to million euros May 1: Issuance Details Page 3

4 FX and Capital Markets Monday, May 11, 1 1 Dollar Future Exposure Institutional Investors 11 7 Exposure in FX Swaps (+) long dollar Institutional Investors Cupom Cambial Exposure Institutional investors FX Derivatives Position* *Dollar futues, cupom cambial, FX swaps Institutional investors - mai-13 nov-13 mai-1 nov-1 mai-1 1 Macro Research Itaú Ilan Goldfajn Chief Economist Tel: Click here to visit our digital research library. Page

5 FX and Capital Markets Monday, May 11, 1 Relevant Information 1. This report has been prepared and issued by the Macro Research Department of Banco Itaú Unibanco S.A. ( Itaú Unibanco ). This report is not a product of the Equity Research Department of Itaú Unibanco or Itaú Corretora de Valores S.A. and should not be construed as a research report ( relatório de análise ) for the purposes of the article 1 of the CVM Instruction NR. 3, dated July, 1.. This report aims at providing macroeconomics information, and does not constitute, and should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell any financial instrument, or to participate in any particular trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date on which this report was issued and has been obtained from public sources believed to be reliable. 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