Americas Quarterly’s Post

Brazilian financial assets have suffered recently due to concerns over the country's fiscal situation. President Lula's proposal for looser fiscal discipline and his disputes with the central bank governor have negatively impacted stocks, bonds, and the exchange rate. Despite these challenges, commodity prices, which are improving, remain the key driver of Brazil’s economic performance, suggesting a more positive outlook for its assets. Alpine Macro Yan Wang 王岩and his team released e very insightful report about Brazil and EM, in which they update updated EM Asset Tracker chartpack. For full report, free trials, subscriptions or more information, contact me . fred@alpinemacro.com #marketanalysis #globalinvestments #globaleconomy #macro #macroeconomics #investments #equities #emergingmarkets #economics #inflation #useconomy #usequities #globalequities #Brasil #Brazileconomy

Special thanks to my co-authors Pon Sagnanert and Jesus Cañas, and for their valuable comments Pia Orrenius and Seth Searls.   Many emerging-market currencies have depreciated modestly during the Federal Reserve’s tightening cycle that began in March 2022. The Mexican peso, however, has outperformed the group during the period, appreciating around 20 percent against the dollar. Peso strength has been supported by a combination of proactive monetary policy, conservative fiscal management, close economic ties with the U.S. and positioning and valuation factors. #mexicanpeso #mexico #exchangerate #carrytrade #monetarypolicy #currentaccount #fiscaldeficits #trade #remittances

🔥🔥🔥  Currency Volatility can disrupt even the most well-laid plans. This week, post the election in Mexico, the Peso has experienced a significant decline. This not only affects regular business transactions with Mexico but also impacts a specific type of FX trade📉. For further insights, check out the article shared below. Feel free to reach out to me or someone at 👉 GPS Capital Markets, LLC for more information. #CurrencyVolatility #ForexTrading #MarketInsights #reuters #Mexico #peso #gpscapitalmarkets

1) A year-to-date chart of emerging markets’ currencies shows that the weakest performance has come from the Brazilian real.  While the Mexican peso gyrated in the days after the election of Claudia Sheinbaum in early June, and other emerging market currencies such as the South African rand and Indian rupee wobbled after their own elections, it is the Brazilian currency that has performed the worst, now down 7% in just the last month 2) In terms of the currency, there have been growing mentions of the need to intervene, as a means of stabilizing the real. However, at this juncture, intervening in the FX may be counterproductive. The main reason for currency weakness relates to the fiscal problems and questions around BCB transition; intervening in the FX resolves neither question. To stabilize the real requires the Lula government making some tough decisions about expenditures. The Brazilian budget is notoriously inflexible and the idea of delinking certain benefits from the minimum wage appears anathema to Lula. The math behind the current fiscal framework however does not suggest that its targets can be met without some real adjustment. The political class will need to make unpopular decisions in this area. 3) Meanwhile, efforts must be made to minimize the impression that the BCB could be vulnerable to political pressures. The vote at the May meeting, where the four recent Lula appointees to the board supported a larger rate cut, created an impression that the post-Campos Neto led BCB could be more dovish. Inflation expectations rose as a result, and rates markets panicked. However, importantly for market participants, the June meeting showed unanimity. The 9-0 vote to hold the policy rate steady showed that the Lula appointees were also on board with the importance of trying to anchor inflation expectations. Galípolo has been consistent of late in stating the importance of convergence to the 3% target and maintaining a tight policy stance. It is important that the various members of the BCB Board deliver this message, to remove any doubt that political pressures or Lula’s criticisms will weigh on policy decisions 4) By early 2025, Lula appointees will control the majority of the BCB board. Political interference in a Central Bank’s reaction function only serves to increase inflation expectations and affects the credibility of the institution, a lesson many countries have learned over the years. BCB’s long sought independence, which was validated by the Congress in 2021, remains intact however. Restrictive monetary policy is never popular, but as other central banks in the region continue with their easing cycles (including Chile, Peru, Colombia, and with Mexico likely to resume cuts later in the year), it will be worth watching whether the BCB bolsters its credibility through the transition process by taking a hard stance.

China moves to support yuan as stock markets tumble China's major state-owned banks moved to support the yuan on Monday, tightening liquidity in the offshore foreign exchange market while actively selling U.S. dollars onshore as equities slid, four sources with knowledge of the matter said. The goal was to prevent the yuan from falling too fast as China's A shares plunged, said one of the people, with the benchmark Shanghai Composite index, posting its biggest one-day drop since April 2022 on Monday, down 2.7%. "It is a clear policy signal to stabilise the yuan and counter the negative market sentiment on equities," said Gary Ng, senior economist for Asia Pacific at Natixis. Overseas funds have sold roughly $1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of slowdown in the world's second largest economy. Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions. The rise come as state banks in the offshore market curtailed lending to their peers, one of the sources said. The move effectively tightened up offshore yuan liquidity and raised the cost of shorting the currency. Meanwhile, the state banks were also selling dollars in the onshore spot foreign exchange market to prevent rapid yuan declines, three sources said. Spot dollar selling became aggressive to defend the 7.2 per dollar level, one of them said. All the sources spoke on condition of anonymity as they are not allowed to publicly discuss market conditions. State banks often act on behalf of China's central bank in the foreign exchange market, but they could also trade on their own behalf or execute clients' orders. The onshore yuan last traded at 7.1963 per dollar, down nearly 1.4% so far this year, while its offshore counterpart last fetched 7.2047. Source: https://lnkd.in/g_biB2SN #GlobalEconomy #FinanceInsights #FinanceNews

US Federal Reserve challenges for 2024(part 2) The interplay of interest rates in the different part of the developed markets also was exhibited briefly but in certain distinct decipherable modes in the year 2023. Across the Pacific , the Bank of Japan indicated it's desire to take a detour from its negative interest rate regime , which again the BOJ had also promoted for more than last 2 decades.The newly appointed BOJ governor Ueda has signalled that the BOJ will officially end it's negative interest rates policy and plans to unravel an interest rate regime with many analysts projecting rates of 0.5% to 2.0% for funds rate from the BOJ. This has a tremendous significance for the dollar because much of the value of the dollar hinges on the back of carry trades in Yen resulting from. the cross border flows trying to benefit from the positive interest rates differentials between the economies of Japan and USA. It is worth mentioning that the Yen carry trades account for a significant portion of the aggregate dollar demand and a significant contributor to the dollar's strength in the later part of the year has been the demand for dollars due to yen carry trades and term deposits of Japanese citizens in the US banks. What might be the possible impacts on the dollar valuation relative to the Yen/ other currencies due to the policy shift in the BOJ funds rate remains to be assessed currently with speculations rife about the intent of BOJ to raise funds rate to the adequate levels which if done would surely dent the demand for dollars as carry trades become much less lucrative. It must also be mentioned that aggregate demand for dollars has already suffered a huge decrease due to many economies deciding to do away with the usage of dollars for transnational trade and have started using their respective currencies for bilateral trade settlements. The speculations about a probable BRICS currency should be further detrimental for the aggregate dollar demand and carries the risk of being damaging to the dollar relative valuation as a consequence of the lessening of importance in transnational trade. How this will impact the relative valuation of dollars remains to pan out clearly. a point worth mentioning is that major oil producers are making concerted attempts to veer off the oil trade from settlements in dollars with some gulf oil producers announcing that they will no longer be accepting dollars as the medium of settlement for oil consignments. Trade related challenges amount to significant challenges for the hitherto unchallenged dollar hegemony since the start of the Bretton Woods system 80 years ago. The dollar as the medium of settlement has seen as an astronomical decline since the pre - covid era when it stood at 70% of the global cross border transactions to currently around 55% of the global cross border transactions. (cont'd)

Developments in BRAZIL… This is truly fascinating...Fascinating on a personal level of interest and one that is getting chatter in my stocks, forex and crypto trading circles. Lula and Dilma (also a former president) first combined round at running Latin America's most important economy my mind was one of the savviest of "left-leaning" leaders in Latin American history. They knew how to both engage a US centric global exchange in not overstep Brazil’s position while appeasing their base without pissing the United States and international financial institutions off. Brazil benefits more than it submits in sovereign power from being a positive swap line nation that can easily access US dollars – much like most of Europe, Japan, Australia, New Zealand and Mexico. This is a huge gamble for Brazil. From a big picture macro geopolitical assessment, I’m only now thinking as I type this I would say – Brazil is gambling that they are too important to the global economy for the US “economic hitman” as @JohnPerkins calls them to come and take Lula out or use the levers of geopolitical power to destabilize the Brazilian economy the way they have done to Venezuela or Honduras. This is something to keep an eye on. I’m still betting a lot of this is headline news to appease the base that got him elected and the crazy Bolsonaro supporters that are still making life a miserable mess with trucker protests and fail to acknowledge they lost the election much like the die-hard Trump supporters in the US. I think Lula is trying to solidify his support for domestic reasons and using what he’s good at – geopolitical promotion of “the global south” and fighting the big bad hegemony of a US “first world alliance” against the developing world. When all is said and done this is for image. Lula knows which way the wind blows and if he pushes too hard with real substance the US will make life a living hell for him and ultimately the Brazilian people will suffer most, and the Bolsonaro supports will be served the next elections on a silver platter. I am all for leveling the playing field out and don’t think it’s a good thing the US dollar remains so overwhelming supreme. That one reason as you all probably remember I’m a hardcore bitcoiner. HOWEVER, Lula (and Brazil) here is navigating some treacherous waters if he pushes de-dollarization too far. If these efforts have real substance behind them we’ll have to see how the US responds. The ball is metaphorically speaking now in the US court. Would to chat about this with anyone out there on the interwebs! https://lnkd.in/eM86Gu7D #usd #brics #dedollarization #forex #geopolitics #latinamerica #latam #brazil

Very practical take by ex RBI Governor. Given that BRICS trade is structurally imbalanced, even if it can avoid USD for trade, it will need a common currency for settlement. Switching from USD to RMB / Yuan would be like going from frying pan to fire. https://ecoti.in/eipHbY via @economictimes

The BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, is on the brink of introducing a new currency that could potentially rival the US  dollar in global transactions. This move by the BRICS nations is not just an economic strategy but a bold geopolitical statement, signaling a shift in the global financial landscape. With the launch of this new currency, BRICS aims to offer an attractive alternative to the US dollar, especially for developing countries engaging in cross-border transactions. The greenback's share of official FX reserves fell to a 20-year low of 58% in the final quarter of 2022, and 47% when adjusted for exchange rate changes, according to International Monetary Fund data. However, the dollar still dominates global trade. It is on one side of almost 90% of global forex transactions, according to Bank of International Settlements Data. De-dollarising would need countless exporters and importers, as well as borrowers, lenders and currency traders across the world, to independently decide to use other currencies. https://lnkd.in/eUj9XTWv

Summary 1. A currency is considered undervalued when its value in foreign exchange is less than it “should” be based on economic conditions. 2. The value of a currency isn’t always determined objectively 3. Factors like investors’ appetite for risk and a plethora of local and global conditions that play into a particular market’s stability are also considered to value a currency. 4. The rand carries a hefty risk premium – given the country’s ongoing power crisis and permanent load shedding, which serves as a deterrent for possible investors for long term investment in the country with expected growth.