Macro: A Hump and a Kink in Brazil’s Yield Curve and more

In today’s briefing:

A Hump and a Kink in Brazil’s Yield Curve
UK: Consumers Face Inflation Constraint
Reaching Neutral Settings for Fed Policy: Littered With Pitfalls in Uncharted Territory
CX Daily: How a State Insurance Boss Got a Cache of Gold Bars

A Hump and a Kink in Brazil’s Yield Curve

Brazil’s rate curve has gone through significant transformations in the past few months, with the curve currently exhibiting a hump in the front end and a kink 3 years out.
The driver behind the hump has been the aggressive rate hikes and the kink is resulting from increasing risk premium in the long end arising from fiscal and election uncertainty.
I expect the kink to get pronounced as more rate cuts get priced with inflation coming off the peak and growth slowing, while risk premium increases heading into the election.

Only half of the retail sector’s horrible hangover recovered in Jan-22, and the mix still skews relatively far away from stores.
The end of draconian covid policies should support some more normalisation of spending patterns in 2023. Unfortunately, inflation is increasingly squeezing real income growth.
Such constraints tend to shrink retail volumes as consumers resist raising their spending values. For example, real wage weakness meant no real retail sales growth between 2010 and 2013.

Investors believe the Fed has fallen behind the inflation curve in early-2022, raising the stakes at the March policy meeting to articulate their policy outlook, including quantitative tightening.
The real federal funds rate will not return to a neutral level in 2022 due to higher-than-desired inflation, which could increase policy mistake risks via overly-zealous tightening measures.
The FOMC is determining an appropriate size of quantitative tightening without impacting the banking system. MBS holdings could be reduced more quickly due to housing sector strength.

In Depth: How a state insurance boss got a cache of gold bars.
Jiangsu plans to set up an investigation team to look into the case of a mother of eight who was found shackled to the wall of a shed and is suspected of being trafficked.
Global investors reveal China stocks they picked and ditched. Some of the world’s top institutional investors have been disclosing the U.S.-listed Chinese stocks they bought, sold and held.

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