some ideas on BRL

After a big stress this year BRL seems to be trying to recover some ground recently. If it wasn't always hard to deal with EM currencies, a very important election turns things to a nightmare. Will try here to break through some of the noise to find some sense of the recent market.

As the candidates are finally showing up in the media recently, market seems to be realizing that there is no chaotic scenario even with a less liked candidate. To make things even better, a perfect candidate in the market's view is showing some life now. That might be too early but some risks must be discounted in the price after all...

technically USDBRL is trying to break some important levels now.

comparing with a EM basket since last year is possible to see that a lot of bad news have been priced...

specially if compared to a more fundamental long term view...

also looking through a model based on PPP, country risk and commodities...

I ran a simple simulation with the same model to figure where the country risk would be at these USDBRL levels and came up with something around 4 times the actual country risk. With the same average risk of 2002 election year we would have USDBRL around 4.00. And that was a very scary moment. What makes me think there is already too much risk priced.

However (as always), besides the internal risks is also important to watch the behavior of the global Dollar (dollar against other majors and broad) as I notices in the last post, making bets on the BRL favorably against other EM currencies to avoid that risk, if its the case.

Comentários

Postagens mais visitadas deste blog

BRL very expensive?

I read this news (link below) yesterday that indicates that BRL might be very expensive according to three models from Deutsche Bank. Though I don't have access to those models metrics, it got my attention because that information doesn't really fit very well with some simple models I run. I know there are lots of ways to model FX and as everyone might know its not a very easy market to figure out, specially for EM, where lots of feedback loops between country risk and FX rate happens and you can have long and short term models. Another point, specially for the PPP metric is the timeframe chosed. Anyway, just decided to post my findings here because they contrast with the DB picture. They might be right but here is my view: Business Insider (Australia) link for the news: https://www.businessinsider.com.au/currency-valuations-september-deutsche-bank-2017-10 That's DB chart... My Behavioral model based on Commodities and CDS (YoY %) PPP metrics based on C...

Starting 2018 with a slower global growth?

It's been 6 months since I last wrote about global trade growth, so it's time to have a look again. After a pretty good recovery since early 2016 and reaching 5% growth on year over year basis it seems now that it has lost some momentum, at least for a while. But what makes me more worried about next few months ahead is that most US and Germany economic surveys are at multi year highs. That should be a good news if it wasn't for he fact that historically those indexes hardly hold much longer at those levels. And when they turn they usually impact global trade, financial markets and stocks for a while. Let's look first at some global trade indexes: CPB Global trade volume looks to be loosing some steam... RWI Index also has slowed. Now some surveys in Germany and US: Germany IFO and Europe Consumer Sentiment. US surveys also at multi year highs: Now some industrial production indexes around the globe: EM looks p...

It's no different this time...but the "timing"...

One of the biggest question (or the billion question) now is probably if the world and US is heading to a recession as the late cycle is not even a question any longer, as recent ECB and FED turn in monetary policy shows. After a few years of a synchronized global growth ( Link ) a very sharp deceleration in activity awoke markets and central banks late last years. To make things even scary in the market perspective the famous and widely watched 10 years minus 3 month US treasury curve went through the negative territory also (for the more optimists the 2Y x 10Y is still positive). If not big part of the problem trade wars certainly didn't help a late cycle economy but its hard to tell by how much. So this time is no different many would say. And they are right However (yes), the timing could be a bit different this time. First there are some signs of stabilization already on OECD composite leading indicators for Europe (who would guess that!!!) and china, with both impacting ...

Plato's Bunker

Pesquisar este blog