For The Dollar, Not How Much But How Long Therefore How Familiar

Brazil’s stock market was rocked yesterday by politics. The country’s “populist” President, Jair Bolsonaro, said he was going to name an army general who had served with Bolsomito (a nickname given to him by supporters) during that country’s prior military dictatorship as CEO of state-owned oil giant Petróleo Brasileiro SA. Gen. Joaquim Silva e Luna is being installed, allegedly, to facilitate more direct control of the company by the federal government.

With the economy still gripped by the latest recession, and oil prices rising worldwide as supplies continue to be squeezed, Brazilians have been caught in the vise between fuel prices and unemployment – pure misery for a nation still reeling from Euro$ #3’s (2014-16) crushing impacts. A depression for years before COVID…and now this.

While shares of Petrobras, as the company is better known, dropped by more than a fifth in frenzied Monday trading, it tanked Brazil’s main stock index, the Bovespa, by around 5%.

And the currency fell sharply.

Presumably, real to dollar exchange is reacting to the idiosyncratic news of specific Brazilian politics. While that may have been true for yesterday’s trading, the Brazilian real had fallen out of reflationary mode months ago.

Like many markets and currencies around the world, vaccine-aphoria pushed BRL modestly into reflationary territory (not really far off record lows) at least when compared to the June to November downward trend. It only lasted until early December as the exchange value nearly touched 5.0 to the dollar for the first time since briefly in June.

But Brazil’s currency does not trade alone in its anti-reflation, post-early December hangover. An entire swath of EM currencies has followed almost exactly in the same way (raising suspicions so far as the violence of market reaction to yesterday’s news might be concerned). From Mexico to Russia, where’d all that good reflation go?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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