HALISTER1: BRL Up With Brexit Relief; BCB Unlikely to Stop Gains: Analysts

BRL Up With Brexit Relief; BCB Unlikely to Stop Gains: Analysts

(Bloomberg) -- BRL may rise further should U.K. referendum confirm polls that favor “remain”; BCB is unlikely to halt gains given less interventionist approach of new governor Goldfajn, analysts say.
  • “Goldfajn made it clear that he wants to let the FX rate float,” Daniel Weeks, chief economist at Garde Asset Mgmt, says in a phone interview
    • Stronger BRL, should Brexit risk be removed, may open room for BCB to act with FX reverse swaps to curb its outstanding position; however, the auctions won’t be set to influence BRL levels
    • Tension from politicians hit by plea bargains not a drag since acting president Temer has not been directly hurt; outlook of reforms also helps to counterbalance concerns over states’ debt
    • BCB may not intervene to halt BRL, as a stronger BRL is helpful to ease inflation, which is still above targets, Jason Vieira, chief economist at Infinity Asset Mgmt, says
  • Weeks see BRL reaching 3.20/USD if Brexit doesn’t materialize; Vieira predicts 3.25, as U.S. Fed’s rates outlook may replace Brexit as main focus for mkts
  • NOTE: Goldfajn on June 13 said BCB may use available FX tools w/parsimony
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Daniel Weeks (Garde Asset Mgmt)
Ilan Goldfajn (Banco Central do Brasil)
Jason Vieira (Infinity Asset Management Administracao de Recursos)
Michel Temer (Federative Republic of Brazil)

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UUID: 7947283

HALISTER1: Kashkari: ‘Profoundly Skeptical’ Current TBTF Reforms Will Work

Kashkari: ‘Profoundly Skeptical’ Current TBTF Reforms Will Work

(Bloomberg) -- Large U.S. banks remain too-big-to-fail, “we must act now” to address problem, “massive structural changes” needed in financial system and among financial institutions, Minneapolis Fed Pres. Neel Kashkari said.
  • “Profoundly skeptical that current efforts will ultimately work,” Kashkari said in text of remarks Mon. in Washington; speech doesn’t address monetary policy
    • Measures don’t go far enough; personally more committed since May to recommending solutions that address systemic risks posed by large banks
  • Increased capital, in form of common equity, “solves many problems”; also has downsides and raises questions that include how much it could raise cost of lending and reduce economic activity
    • Idea of a tax on financial firm debt was discussed by experts at Minneapolis Fed’s May symposium, yet raises many questions
  • Results from review of 8 largest U.S. banks’ living wills don’t “inspire a lot of confidence”
  • Plan requiring govt to “stick losses” on long-term debt holders during crisis won’t work because it’s too complex
    • Resolving a large bank during a crisis would be akin to dismantling an aircraft carrier in middle of a hurricane
  • Must take action to prevent risk from “simply going to another corner” of financial system, such as shadow banking sector
  • Financial system will be exposed to “unacceptable risks if reforms are left incomplete”
  • Should design regulatory framework that assumes regulators won’t have better insights into trigger for next crisis than mkt participants
    • Framework that relies on investors’ mispricing risk may work for a time, isn’t likely to work over long term
  • Opposes approach to having banks’ capital be entirely equity instead of both convertible debt/equity
  • NOTE: Kashkari, a former Pimco executive and Treasury official who oversaw TARP program, joined Minneapolis Fed in Jan.; he succeeded Narayana Kocherlakota and becomes voter on FOMC in 2017
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Neel Kashkari (Federal Reserve Bank of Minneapolis)

Topics
BGOV Finance

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UUID: 7947283

HALISTER1: Fed’s Long-Run Median Dot Is Likely to Be Lowered: Credit Suisse

Fed’s Long-Run Median Dot Is Likely to Be Lowered: Credit Suisse

(Bloomberg) -- Fed’s long-run median dot, lowered to 3% from 3.25% at June mtg, is likely to be revised even lower in upcoming mtgs, Credit Suisse strategists Praveen Korapaty, William Marshall, Jonathan Cohn write in note.
  • “Our skepticism about an improvement in productivity growth drives our view of a persistently depressed neutral rate”
  • Lower dot would reflect “a downtrend already seen in the market-implied neutral rate”
  • Yellen’s case for a July hike “appeared half-hearted, in our view”
  • A more hike-adverse Fed “should, on the margin, be net supportive for TIPS breakevens, especially if recent signs of strength in delivered inflation continue”
  • Sentiment around June 23 U.K referendum should remain key driver of yields approaching vote
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Jonathan Cohn (Credit Suisse Group AG)
William Marshall (Credit Suisse Holdings USA Inc)
Praveen Korapaty (Credit Suisse Group AG)

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UUID: 7947283