Itaú BBA - Global background continues to benefit EM FX

FX and Capital Markets

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Global background continues to benefit EM FX

October 1, 2018

The Brazilian real was stable by the end of the week, closing at 4.05 per dollar

(full report attached)
 

Relief in external uncertainties supports emerging market assets

Indications that the Federal Reserve will keep a gradual pace of monetary tightening and the retreat by the U.S. government in its trade dispute with China reduced the likelihood of a more adverse global scenario. This background favored flows to emerging markets, boosting their currencies. The Brazilian real was stable by the end of the week, closing at 4.05 per dollar (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market last week

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just rolled over of contracts expiring in October. Its stock of FX swaps now stands at $69 billion (Charts 5 and 6).

Currency outflows in September

The currency flow was negative by $3.4 billion during the month, pressured by financial outflows. Last week, $2.0 billion financial outflows outsized $65 million trade inflows (Charts 7 and 8).

No external bond issuances last week

There were no issuances by Brazilian companies abroad last week. Year-to-date, Brazilian bond offerings overseas total $16.6 billion (Chart 9 and table).

Foreign flows to the stock market were positive in September

Foreign flows to the stock market were positive by $691 million during the month, driven by $543 million inflows to the spot market and $148 million inflows to the futures market (Chart 10).

Non-residents reduced their position in dollar futures

Non-resident investors cut their position in dollar futures by $6.4 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $29.7 billion, $17.0 billion and $20.4 billion, respectively (Charts 11, 12, 13 and 14).



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