Brazil, a negative outlook means the clock has started to tick

S&P changed Brazil's rating (BBB-) outlook to negative, given the execution risks of the policy changes in place. Further deterioration of the political landscape is expected to only trigger this move in H1 16, so this rating is surprising.

Unless there is a strong change in the relationship of the government and the Congress, it will be hard for Brazil to keep the IG status until one year from now. In the short term, risks are that other rating agencies, such as Moody's and Fitch, not only downgrade the rating but also keep a negative outlook.

Among the factors that drove the downgrade are
(i) The economic growth recession, which is proving to be longer and deeper than previously anticipated, and
(ii) The political situation that increases the odds of seeing a reversion of the various policy corrections that are underway by the new economic team. 

Finally, the agency also sees the external fundamentals of Brazil deteriorating to some extent. 

"This event, in the short term, increases the risks that other rating agencies not only downgrade the sovereign rating during the next few months, but also keep the negative outlook", says Barclays.