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Rates at the floor, cyclicals at the bottom — January 2013

Episode

The extreme

Money was cheaper than it had ever been, and even so nobody wanted the real economy. The Selic at the floor of its series should have been an invitation to the sectors that live off the cycle — industry, consumption, everything that breathes with activity. Domestic flow did the opposite: it buried the cyclicals a little deeper, to the lowest point of the quarter. Whoever turns down a gift usually knows something. In numbers: the Cyclical/Non-Cyclical ratio fell from -1.59 to -2.09; the Perene Risk Index dropped from 78.6 to 26.7, back to risk_off; the Selic at 7.25% a year, the dollar at R$ 2.03, and an IPCA of 0.86% for the month — the highest in the recent run.

What happened next

The flow had reason to distrust. In April, the Selic rose from 7.25% to 7.5% — the first tightening after a long easing. And the sector that January still treated as the favorite, financials, did not survive the turn: the Financials/IBOV ratio collapsed from z 2.74 to -1.31 in a single month, a displacement of 4.05 deviations, the largest ever recorded by the structure. By July the Selic was already at 8.5%, a third straight hike, and the cyclicals remained locked at the bottom (-1.57), recovering nothing. In January 2014, with the Selic at 10.5%, they were still buried. The monetary slack that seemed eternal lasted only a few more months.

What did not happen

The cyclicals' bottom in January was not a bottom. Anyone who read -2.09 as "there is nowhere left to fall" was wrong: they stayed there, depressed, for more than a year. And the rate at the floor was not a floor — it was an eve. The monetary relief that should have favored the real economy was about to reverse, and the flow was already acting as if it knew. Nor was there an orderly flight to the shelters: the defensives barely moved (Utilities gained only Δ +0.35), and fear rebuilt nothing with conviction.

The honest verdict

January's reading was contradictory from the inside: the Perene Risk Index screamed risk_off at 26.7, while the intermarket climbed into neutral terrain, from 16.5 to 49.9. Two axes, two directions. The honest thing was to admit that neither told the story alone — what there was, was a market draining its offensive bets without closing the account. The truest signal was not in the mood index, but in the cyclicals' stubbornness in refusing cheap money. That one the engine read right — it just couldn't say it would take a year of rate hikes to prove itself.

Continue reading: Cyclicals vs. defensives — who leads each regime · The high Selic and the low Selic — the mood in each rate · When the gauges disagree →

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Characters: Cyclicals × defensives · Rates (Selic)