The Long View

So, what do you need to know about this week? Aside from another geopolitical event or unforeseen move in global markets - always possible, the one event that all market participants are waiting for is the 3 day meeting in Jackson Hole, Wyoming, between the members of the US central bank, as well as other central bank chiefs to discuss the world and the global economy.

On Friday we will look for clues about how much US interest rates could fall, and for how long. Has inflation decreased enough, so the US central bank can reduce rates and start to focus on an employment market showing signs of weakness? Probably.The BRL is enjoying some respite against most major currencies, and as local rates are unlikely to move before 2025 due to inflation creeping back above 4%, there is a window that could open for emerging market currencies. The spread,or difference, between US and Brazil rates could start to widen beginning September 18th. We should know whether this is likely to happen on Friday, as Chairman Jay Powell will give his press conference.

The economic data is sparse this week, both here and abroad, therefore the build up and expectation to Friday will be the principal factor for the USD/BRL. We suggested last week that a stage is being set for a BRL rally. A tick up in local inflation data next week, coupled with stable PCE Price Index next Friday in the US will strengthen the case for Brazil over the short term. Emerging market assets in general are inexpensive (not cheap) in USD terms, so there is certainly room for a move up. For how long it will last will depend on various factors, not least the US inflation rate remaining close to target (2%).?