Flat

Brazil

Plenty of reasons to fade the 50% Brazil tariff headline:

• Brazil runs a trade deficit with the United States.
• The tariff is not in effect yet and could easily be taco’d before August 1.
• The tariff has nothing to do with economics; it’s purely a political lash out. John Authers sums it up nicely in his piece today. Here’s one of his charts:

On the other hand, the risk if everyone wants to fade this out of the gates is that we get another leg higher in USDBRL as the weak hands stop out when the initial fade doesn’t work.

The market is already long a decent clip of BRL as part of various carry baskets and as part of BRL-specific bullishness so the ammo to fade might not be as plentiful as one might hope.

There are three tightly clustered resistance lines that come in at 5.63, 5.6950, and 5.74 and I think if you’re looking to get in, some patient scaling makes sense to buffer any silliness if the USD strengthens a bit more broadly, or BRL nerves are jangled.

When USDBRL is closed, you can watch EWZ as it’s a good proxy and trades almost 24/5. Much of the retail and some of the hedge fund offshore exposure to Brazil is via EWZ.

Supports in EWZ are 27.00 and 26.30.

Something to keep in mind if you’re looking at longer-term charts of EWZ, is that it pays a ~5% dividend and therefore the long-term price chart understates its total return. The returns have been horrendous, but not quite as horrendous as they look on the EWZ chart!

The insta-faders are already selling USDBRL on the open—the risk is another wave of BRL selling at some point that creates a difficult stress test for Brazil bulls. As long as USDBRL stays below 5.75 you’re good.

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Final Thoughts

I am keeping it short today as some of my missives have been on the long side this week and I want to keep you guessing.

Chris Waller speaks at 1:15 p.m. New York time today, but it’s not listed on Bloomberg for some reason. Here is a link if you would like to watch live. I can’t imagine the conversation will be very interesting as Waller’s the leader of the Two-Dotters and has been hankering for a cut ASAP. The only surprise would be if he backs off that view, but that’s unlikely.

The current generation is risk-averse and doesn’t like to party much. Nice piece from Derek Thompson.

Alpha Trader is super cheap for Prime Week. Normally $36, currently $23.

Have a guilt-free day.

Midjourney imagines guilt, cyberpunk comic style

Guilt is when your values and your actions don’t align.

good luck ⇅ be nimble