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The safe dressed as a commodity — July 2015

Episode

The extreme

It looked like the awakening of a raw-materials cycle. Commodities measured in reais surged against the Ibovespa and landed at the most distant point in their entire history — one of the most stretched shelters the money sought that month, alongside the power utilities and the stocks that don't depend on activity. But no one there was buying iron ore or oil for the demand. They were buying the dollar embedded in them. It was a safe dressed as a commodity. In numbers: the Commodities (R$)/IBOV ratio jumped from 1.18 to 2.05, two standard deviations from its own mean, while domestic mood climbed to 79.1 and the intermarket structure sank to 21.3 — appetite on the surface, defense at the foundation. The dollar at R$ 3.2231.

What happened next

The safe only filled up. By September the same ratio reached 2.60 of deviation, and by October the dollar was already nearing R$ 3.88 — the weak currency inflating the real-denominated value of those who export. In January 2016 fear hit the ceiling: the dollar closed above R$ 4 for the first time, and the other shelter, the power utilities, marked 3.28 of deviation, the highest point of the series. Then, slowly, the hideout emptied. By July 2016, with the real back to R$ 3.27, the Commodities (R$)/IBOV ratio was no longer in the heights: it had collapsed to -2.13, the month's greatest relative deterioration. The appreciated currency eroded exactly what the weak currency had inflated.

What did not happen

July's leap did not announce any commodity boom. No recovery in global demand for iron ore or oil came — what came was fear of the real, dressed as a commodity. And the level of the exchange rate, on its own, did not explain the safe: July 2015 (R$ 3.22) and July 2016 (R$ 3.27) had nearly the same dollar and opposite readings. What worked the lock was the direction of fear, not the snapshot of the currency.

The honest verdict

The reading got the nature of the move right — a currency refuge, not an exporter bet — and the year confirmed it when the safe emptied. But it could not pin down the timing. The hideout grew fuller for six months before it withered. An extreme is not a turn; it is a state that can last a whole winter.

Continue reading: The commodity leap that was really FX — April 2016 · The commodity that only pays in reais — May 2013 · The end of the commodity reign →

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Characters: Commodities · Dollar