Itaú BBA - BoJ action boosts global markets

FX and Capital Markets

< Back

BoJ action boosts global markets

February 1, 2016

The BoJ decision surprised expectations and boosted global markets

(full report attached)

Unexpected move affected emerging market currencies

The Bank of Japan (BoJ) cut interest rates last week, setting negative rates. The decision surprised market expectations and boosted global markets, strengthening the Brazilian real. The currency closed the week at 4.00 reais per U.S. dollar, appreciating 2.37% during the week and outperforming its peers (Charts 1, 2, 3 and 4).

Central bank set to fully roll over swap contracts for a seventh consecutive month

The monetary authority finished the rollover of contracts expiring in February and announced the rollover of contracts due in March. If the pace of 11,900 contracts per day is sustained, contracts will be fully rolled over for a seventh consecutive month. Last week, the central bank also carried out a FX credit line auction of up to $1.8 billion (Charts 5 and 6).

Currency flow became positive in January

The currency flow was positive last week, driven by $1727 million trade inflows and $925 million financial outflows. The flow during the month is positive by $1.8 billion (Charts 7 and 8).

No external bond issuance by Brazilian companies last week

There were no issuances this year. Issuances added up to $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are slightly negative

Foreign flows to the stock market are negative in January, as $204 million outflows from the spot market outsized $100 million inflows to the futures market (Chart 10).

Foreign investors reduced their positions in FX derivatives

Non-residents reduced their long positions in dollar futures by $3.1 billion, while increasing their long positions in cupom cambial by $2.3 billion. Other FX derivatives positions were kept virtually unchanged by other agents. Non-residents, banks and institutional investors hold positions of $28 billion, $40 billion and $33 billion, respectively (Charts 11, 12, 13 and 14).



< Back