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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 pretty flat and DM could turn for a while as talked above…
Postagens recentes

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:


That's DB chart...

My Behavioral model based on Commodities and CDS (YoY %)

PPP metrics based on CPI and PPI

I wou…

Ibov, long term perspective

After a stellar performance in the last one year and a half or so some might be asking if IBOV is running ahead of itself, specially if we take into account all the political turmoil in the recent past and the uncertainties about the next year election. But though recently Ibov reached the historical highs in BRL terms it's still way below in USD terms and relative to other EM markets. The only certainty is that no one knows for sure what is going to happen, so my intention here is just to put the actual levels on a more historical perspective to clarify a bit where we are at this point. And in my humble opinion Ibov still have room to go in the next 2 to 5 years. (if we don't follow a venezuela path of course, but think that risk is low).

Ibov in USD log terms since 1968

removing it from the trend...

5 years annual compound return...

10 years annual compound return...

relative value of the EWZ ETF against EEM...

and finally a simple model to test Ibov (BRL) annual return…

Global Trade

Quick post here. I have been following a bunch of indexes and proxies of global trade volume for a while. I think its very important not just because we can have a picture of global growth, specially for emerging markets, but also because as commodities has in general become more traded by large numbers and types of players, including financial institutions, they have become more prone to herding behavior in the short time and sometimes losing its status as a proxy of global trade.
Well, what most of them have been showing recently is that so far global trade measured in volume keep improving. Below some charts of those indexes:

CPB global trade volume and prices

RWI Container Throughput Index

next, Cass Freight Index and Intermodal Traffic Index. Both are more related to US trade but also corroborating with the idea of a more healthy global trade

I don't like much the Baltic dry index because it also has the component of supply/demand of ships affecting it but if you like it...


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.

Built this easy model to figure out at least to som…


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 middle of nowhere wit…

Yield curve flattening and the recession

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: