• Matheus Zani

🌎 Will the BoE go Negative?| Turkey Poking Greece | Brazilian Exports Surge

Updated: Nov 24, 2020

September 18th, 2020

Happy Friday!

We hope you all had as good a week as Mike Speiser of Sutter Hill Ventures. He took a punt on Snowflake in 2012 and ultimately invested $200m into the cloud data platform. On Wednesday, Snowflake IPO’d and shares jumped 134%, meaning that Mike and the SHV team are sitting on a stake worth $12.6bn. Beers are on Mike!

Did You Know...

All eyes are on cloud-data software maker Snowflake Inc.’s trading debut after it raised $3.36 billion in the year’s biggest U.S. initial public offering for an operating company and the largest in software ever.

Can you name the top 10 largest IPOs of all time?

(Answer below)

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Is BoE going negative?

With the catastrophic effect of COVID-19 still reverberating through the global economy, negative interest rates have become an increasingly attractive option for central banks. Both Japan and Switzerland have adopted the technique to try and boost their respective economies, now it looks like the Bank of England is toying with the idea.

Back in July, a BoE governor warned about the challenges that negative interest rates would bring.

While negative interest rates can potentially provide short-term gains, persistent use can threaten severe systemic disruption: from the creation of market bubbles (in stock market, real estate, so on) to a range of dysfunctional incentives.

In August, they warned that negative rates were “in the toolbox’. With China the only major country with positive GDP growth, albeit with many questioning the validity of their data, the temptation to stimulate growth with negative rates must have been overwhelming in the latest meeting.

Yet- they resisted once again, voting unanimously to leave rates unchanged until progress on inflation goals are made. However, the Bank will begin “structured engagement” with UK bank regulators on how it might implement them, and risk of persistently elevated unemployment means they may not be far away. Comments in the minutes drove traders to speculate that the next 10 bps of easing will come in February. As a result, Sterling fell .7%, and gilt two-year yield fell 5 basis points.


GBP/USD is the most volatile of all major pairs, nearing 10%/annum. Fortunately, hedging costs are less than .2%/year.

First Look

Offshore Banking: Separating Reality from Fiction

Alicea Castellanos, CPA, TEP, N.P. from Global Taxes wrote this fantastic article for our readers covering the tax implications of opening and maintaining offshore accounts in various jurisdictions.

Some offshore jurisdictions are well known in the financial and banking industries as havens for transferring assets such as in Switzerland, the United Kingdom, and the Caymans. In collaboration with Deaglo, this article serves an appendix of sorts to the article on their website entitled Tips for Swiss Banking – is there a better way?...

Read More Here

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Turkey drills where it pleases

Ankara has deployed an armada of naval vessels accompanying its seismic research ships in pursuit of hydrocarbon resources and influence in the Eastern Mediterranean - in waters deemed to be within the Greek and Cypriot EEZs. The EEZ is a legal designation agreed to by the signatories to the 1982 United Nations Law of the Sea Convention or UNCLOS. Unfortunately, Turkey is not a signatory...

The whole region is tied up in oil and gas projects and conflicts.


Erdogan has tied up a maritime deal with Libya that cuts across Russia and the UAE's interests, as well as disrupting a potential eastern Mediterranean gas pipeline to Europe. Israel has gas to export, Europe wants to diversify gas imports away from Russia, and Macron, who opposes Turkey in Libya, has taken a stand behind Greece. The United States is sympathetic to Greece's difficulties too. Truly, a Charlie Foxtrot.

Doesn't it seem odd that two NATO allies are confronting each other? Well, NATO is quite new in the Turkish-Greek history, which has been marked by alternating periods of mutual hostility and reconciliation ever since Greece won its independence from the Ottoman Empire in 1830. The two countries have faced each other in four major war:

  • The Greco-Turkish War (1897)

  • The First Balkan War of 1912 to 1913

  • The First World War (1914 to 1918)

  • The Greco-Turkish War (1919–22).

But wait- there’s more - in the 1960s, again in the 1974 Cypriot coup d'etat, was immediately followed by the Turkish invasion of Cyprus in 1974, and the Imia/Kardak military crisis in 1996.

Needless to say, this rocky relationship continues to deliver drama.


With an annual volatility of nearly 20%, and hedging costs over 5%, the TRY is a disaster.


Brazilian agricultural exports to China hit record levels

Brazilian farm producers are taking advantage of a stronger USD/BRL to boost their exports, and have found a hungry buyer in the international market…

Surprise surprise, it’s China.

The main reason underpinning China's strong demand for Brazilian agricultural goods is its weakened currency. The real has depreciated 40% of its value since January, boosting the price competitiveness of Brazilian goods.

Brazilian agribusiness exports by destination countries in the last twelve months (Fig 1), show that China remains the top buyer, acquiring more than a third of everything exported by the sector. With foreign sales of US$36.74 billion and an increase of 18.9% over the values of the immediately preceding twelve months, the Chinese participation increased from 31.8% to 36.0%.

Fig 1. Brazil Exports to China (in USD million)

The figures also show that the trade war between Beijing and Washington has generated a growing appetite for new suppliers. On the one hand, strong Chinese demand is a sign of a rebound in the economic growth of the country and also a huge opportunity for Brazilian industry amid the economic and social crisis caused by the Covid-19. On the other hand, not so good news for the locals as Brazilians are facing a skyrocketing food price.

The 12-month accumulated inflation (Fig 2) starts a slight accelerating trend, from 2.31% in July/20 to 2.44% in August/20, especially capturing the rise in prices of the Food and Beverage group. Black beans are up nearly 30%, beef about 40%, rice has risen 19.3%, corn flour 8.1% and soybean oil 18.6%.

Regarding animal proteins, beef increased by 38%, chicken and eggs by 7.5% and pork by 19.4% between September 2019 and August 2020.

Fig 2. IPCA Index (blue line), Food and beverages (green line), domestic items (grey line)

From a federal government standpoint, the increase in the food prices, which make up the staple daily diet in Brazil, is caused by the increase in demand in domestic consumption. This increase is driven by the emergency aid of US$ 115 per month that the government has given since April to the poorest to deal with the pandemic. Not only has Bolsonaro’s government ignored the market fundamentals, but it also abandoned its policy of regulatory reserves.

FX With an annual volatility of nearly 17%, and hedging costs over 1.5%, it’s worth paying attention to how this currency is behaving.

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


According to Market Insider

  1. Saudi Aramco - $29.4bn

  2. Alibaba - $25bn

  3. Softbank - $23.5bn

  4. Agricultural Bank of China - $22.1bn

  5. Industrial and Commercial Bank of China - $21.9bn

  6. AIA - $20.5bn

  7. Visa - $19.7bn

  8. General Motors - $18.2bn

  9. NTT Docomo - $18.1bn

  10. Enel - $16.6bn

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