Commodity prices in general have been soaring for almost one year and based on year over year returns are now at levels only seen a few times. Though very often prices, specially for assets wide traded, usually front run the real economy, with some time in our favor it is possible to at least question those price actions. Possibly could be too early to question that but its getting intriguing in my humble opinion. Some charts and thoughts below: Commodities (equal weighted index) YoY + 2 standard deviation. In the meantime global trade volume (CPB data) have improved somewhat but hardly to the same extend as commodity prices. Last time we have seem those price levels trade volume were running at 5 to 10% against 3% now on YoY. (trade volume LHS) using the two Y axes: by the way, its also interesting how trade volume is weak and lagging behind some other economic measures that it used to have some correlation like the US ISM PMI. ...
Postagens
BRL and other brazilian assets have run quite a wild path last 4 years. From the “country of the future” to most hated EM and now to some “OK back to business”. No intention to tell the whole story again now once most know it very well. What calls my attention now is that perhaps once the excesses of the downside relative to other currencies has worked out it seems now for me that the optimism has also run its course in relative value to other EM's. Important to notice the “relative” because I still believe commodities has a way to go up so BRL will still benefit from it but Im concerned the “very cheap” is behind, both in relative value and also in fundamental terms. Currency is probably one of the worst markets to predict. Besides many factors acting at the the same time they also change in importance during the time. Not to say that sometimes it seems no fundamental factor works at all. But sure tones of models can be made and at least we are not in the midd...
A lot attention has been paid to the yield curve recently, specially the 10 years minus 2 years US treasure spread (spread). In fact many papers have been written on the subject and the important prediction function that the spread has on US economic cycles and recession. However since the introduction of the ZIRP the nature of the spread seems to have changed. Looking through the data since 1978 until ZIRP its possible to notice that the most important driver of the spread has been the short term interest rate, more specifically the Fed funds, and not the long tail. But after ZIRP things changed and because the short term is anchored by the Fed funds the spread has been driven by the long tail. So, looking for the spread nowadays could be misleading in terms of recession prediction. Sure a recession is always possible but this time it wont be caused by the usual driver of the spread, what reduces its importance in my view. Fed Funds, curve flattening and recessions: ...