• Matheus Zani

🌎 Putin’s sweet 16 | Biblical plague in Latam and Fed minutes make for dismal reading

July 2nd, 2020

Happy Thursday!

We decided to put out 3things a day earlier for our American readers, who will likely be “socially distantly” celebrating US Independence Day all weekend (or as we Brits call it “British Thanksgiving”. Hot dogs and Bud lights/White Claws at the ready.

Did You Know...

Only John Hancock signed the declaration of independence on 4th July 1776, all the other signatories signed it later. #firstmover

Only two of the signers of the document went on to serve as president, any idea who?

(Answers below)

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Putin for President… Forever

What do you do when you are about to hit the limit for the amount of time you can serve as a country's leader… duh… pass a law to extend it to the middle of the next decade.

Russian voters headed to the polls on Wednesday to cast ballots on a nationwide referendum on constitutional amendments. The victory means that the two-decade term of President Vladimir Putin could run until 2036.

According to the electoral commission, he won 77.9% of the votes. However there are queries being raised from detractors about calling a vote in the middle of a global pandemic and independent election monitoring group confirmed there were many violations; opponents being barred from campaigning in the media, remote electronic voting organized on an illegal basis and election monitors were appointed by the civic chamber - a governmental body.

How does Russia's economy under Putin look like over the last 20 years?

Under Putin leadership, Russia has experienced a rapid economic recovery. In the last 20 years, Russian GDP grew by 85%, even though the GDP growth rate in the past five years has stuck under 3% per year due to unsuccessful growth strategy.

Russian GDP and GDP Growth Rate

Source: World Bank

However, on the one hand, Russian government is still very praised for its achievement of macroeconomic stability. Inflation has been brought down and under control; the budget is in surplus; national debt is low; and the reserves are ample.

Historic CPI inflation Russia (yearly basis) - full term

Source:Inflation.eu - Worldwide inflation data

On the other hand, Russia has not shown a progressive inclination on social issues. The Russian political and cultural establishment, television and newspapers have become more conservative in the last 20 years and the new constitution is all in line with. Therefore, the majority is voting to keep the cultural conservatism of Vladimir Putin’s rule.

USDRUB exhibits high volatility, almost 14%. This corresponds to about a 22% Value at Risk/annum. Unfortunately, hedging costs are quite high, around 4%; favoring selling USD buying RUB

Feature Article

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Locust plague Brazilian and Argentinian Crops

Millions of locusts over the land and devouring everything that grows in the fields, sounds like Sunday School lesson. Nope, just another month in the year 2020.

The swarm originated in Paraguay has already moved through the Argentine provinces of Santa FĂ© and Formosa, which borders Uruguay and Brazil.

Argentine farmers have seen a huge dark cloud hovering over their crops this week. This enormous group of locusts has an extension of 15 km2 and the insects cause serious and permanent damage to corn, sugar cane, wheat and oats crops.

The spread of the current outbreak depends on two factors - effective control and monitoring measures. According to Argentina's food safety body Senasa, they had managed to reduce the swarm size, but farmers from Brazilian southern region, which produce about 85% of Brazil's wheat, are rather feared once the locust may arrive soon in the region where wheat is still being grown.

Meanwhile, Brazilian authorities are hoping the arrival of a cold wave in the region in the last days could change the swarm course and the insects could return to the center of Argentina. I’m sure the Argentinians are hoping for the exact opposite. 2020 you are a cruel mistress; and it’s only July!

USDARS has to have the highest volatility in the world at 22%. This corresponds to a VaR of 35%/annum. Unfortunately, ARS also has the highest hedging costs, at a mouth-watering 60%/annum.

Unbelievably, ARS has lost 84% of its value in the last two years.


Feds minutes show the brutal truth of the state of the US economy

How bad could things get? Well turns out World War II is the new benchmark. The Federal Reserve recently warned that we could be in line to see the steepest drop in economic activity since the post-World War II period.

The Wednesday minutes from the June 9-10 discussion were released, and with them came the sombre realisation that things are going to get harder before they get easier.

The minutes show officials noting that the crisis was “not falling equally on all Americans” and that the sharp rise in unemployment had been severe for lower-wage workers, women, African Americans and Hispanics.

The minutes go on to further outline a fear by southern and western states, that even before the recent spike in coronavirus cases, Fed officials were concerned with what a resurgence in cases might do to efforts to mount an economic recovery.

The Fed’s policymaking committee (FOMC) voted 10-0 to keep interest rates at a record low near zero. This comes as no surprise as many feel interest rates will remain ultra-low through 2022. This could be done in a number of ways, one of which is interest rate caps - a strategy that hasn't been used for seven decades.

The low-interest-rate regime has spurred corporate borrowing to amazing new highs.

The dollar index has actually fallen to a little bit below its multi-year average, from a high of well over 100 in late March.

In Other News

Currency Heat Map

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

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Quiz of the week


John Adams and Thomas Jefferson

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