🌎 Bolsonaro fires Mr. Popular | Europeans emerge | Recovery... Show us your shape | 3 Things

April 17th, 2020

Happy Friday!

We all need to be more like Captain Tom Moore. To celebrate his upcoming 100th birthday, Captain Moore decided to do 100 laps of his garden. Over the past 10 days, the centurion managed to complete his milestone raising $20,000,000 in the process. Tom is still completing laps and still raising for the UK NHS, you are able to donate to the cause here.

On the subject of donations Did You Know...

This week, President Trump announced the US would be halting any funding of the WHO until a review of their involvement in the spread of COVID-19.

The US is (was?) the largest funder of the World Health Organisation (WHO) with $893m on a two-year budget cycle.

But who are the top 5 WHO funders?

(Answers below)

FX Industry Expert Paul Stafford Joined Deaglo As our Head Of Advisory


Bolsonaro fires Health Minister as scrutiny intensifies

Brazil has an unwanted title as the country tries to combat the largest outbreak of COVID-19 in Latin America.

Brazil’s President, Jair Bolsonaro, is under increasing pressure to show that his administration has the virus under control. However, Bolsonaro is very much part of the ‘everyone is overreacting’ contingent as global cases top 2m and previously referred to the global pandemic as the “little flu”. The president also recently said he was unconcerned about the risk of the virus because he was “an athlete” (but what about those who aren’t?)

This was highlighted in recent disagreements with his Health Minister Luiz Henrique Mandetta who was lauded by the public for advocating broad-based social isolation. Bolsonaro ultimately disagreed and sacked Mr. Mandetta.

The sacking could have been accelerated by a recent poll by Datafolha which gave Mandetta an approval rating of 76%, well above the presidents 33%. With 1900 deaths so far (out of a population of 200M), Brazil has either dodged the bullet or they’re simply in the early stages. If it’s the latter, and assuming exponential growth similar to other countries (doubling times of 3 days), in a month 2,000 deaths would grow to 2M deaths. Time will tell who was more right.

They need to be right. Recent indicators are showing an economy under immense stress. Consumer confidence has plunged to the lowest level on record. Business sentiment also sank to a record low of 58 (previous level 97!). With inflation also plunging, there’s room for the Central Bank to make more cuts in its upcoming early May meeting.

Source: Getulio Vargas Foundation

As per usual, BRL volatility is one of the highest of the EMs, at 14.5%/annum. Whilst some currencies overshot and have come back down a bit, BRL has remained at its worst level ever. Amazingly, it’s lost 68% of its value since early 2018 (half of that loss is since January 2020).

US Dollar Index


Straight To The Pub

Could there be light at the end of the tunnel? For some European countries, there seems to be cautious optimism. As new cases COVID-19 continue to decrease - Italy, Austria and Spain are set to allow the partial return for “essential workers”.

With global infections passing 2m, the International Monetary Fund (IMF) announced the expectation that the global economy will shrink by 3% in 2020, richer countries could be facing contractions of up to 6.1%. This has spurred governments to ease the lockdown restrictions in a hope to mitigate as much damage as possible to their economies.

  • Austria - Public parks, small shops, etc reopened with strict distancing rules and masks. Hopes for all stores to reopen on 2 May.

  • Italy - bookshops, laundries, stationers, children’s clothes stores reopened in some regions; forestry workers and IT manufacturers back at work. Full lockdown set to end 4 May

  • Spain - Some factory and construction workers back working. Lockdown set to end 27 April but likely to be extended

  • Denmark - Daycare centres and primary schools to reopen 15 April, Restaurants, cafes closed and gatherings of more than 10 people banned until 10 May, larger gatherings until August.

  • France - Lockdown extended until 11 May, after which creches and schools to reopen progressively. Bars, restaurants, cinemas to stay closed; large public gatherings banned until at least mid-July

  • Germany - Advisers have recommended schools could reopen after Easter holidays but authorities have so far said too early to lift restrictions.

  • The UK - Current lockdown was to have been reviewed on 13 April, but officials said on Monday it was too soon to start easing restrictions

This news has come on the back of Sweden’s widely publicized alternative approach to managing or not managing the spread of the virus. As the world considers emerging from their bunkers the Swedes are busily preparing theirs. According to reports, the death toll is 17 times higher than its Nordic neighbors.

In any case, for many European countries caution is key here, no one fancies lockdown 2.0.

After some recent gyrations, EUR continues its two-year slide against the USD. It’s approaching the 10 year low of 1.03. Volatility is one of the lowest amongst the majors at 7.11%/annum.

Hedging costs are extremely low at about .1%/annum, slightly favoring EUR sellers.


Show us the shape of your recovery? V, U, Nike Swoosh or... W

Retail sales are really bad - not much of a surprise considering most stores are closed and nobody wants to go into the ones that are open. That being said, some sectors are outperforming the last month, which got us thinking about what a potential recovery could look like...

What we found is that there is much uncertainty on what shape the recovery will take. The most optimistic is a V shape - an immediate recovery. China’s March PMI sort of looks like that. It had dropped from 50 to 30, and now is already back to 50 (if you can trust their statistics).

A U shape is somewhat more likely. It will take time to relax rules and restart the economy. You can’t just start up a factory from cold and be back to full capacity, and an economy is more complex. Debt will have to be repaid, hiring will need to be done, and international trade will start sluggish as each economy responds.

A more likely scenario yet is a slower recovery, with social distancing remaining through June. This could morph into what’s being called the Nike Swoosh recovery (product placement clearly comes in all forms now). Limits are eased more slowly than they were imposed, and GDP remains below prior levels well into the year. People and businesses will be over-cautious.

Source: Bloomberg

The last, and worst case is a W shape - the virus rebounds on the back of premature relaxation of rules and limits. We don’t profess to know the future, but one thing is for sure, caution is key.

USD remains on a long-term ascent, notwithstanding some recent gyrations. FYI, it was 100 at inception in 1973. It has since traded as high as 164.7200 in March 1985, and as low as 70.698 on March 16, 2008.

USD Index (DXY)

In Other News

This Weeks Economic Data Calendar

Keep An Eye On Next Week

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If I learned anything over the past decade, whilst working with cross border transactions, it is that we seldom learn. I have honestly lost count the number of times I have asked the question to CFOs “Do you like working with your bank” for the person on the phone to say “No not really!” (or some other explicit variation). So, why do we continue to use them for our Foreign Exchange (FX)?... READ MORE

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Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.

Deaglo Currency Heat Map

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Quiz of the week

  1. The United States - $893m

  2. Bill and Melinda Gates Foundation - $531m

  3. UK & NI - $435m

  4. Gavi Alliance - $371m

  5. Germany - $292m

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