Chile Peso 2016, starts at 717

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Re: Chile Peso 2016, starts at 717

Postby admin » Sun Jul 03, 2016 11:19 am

seawolf180 wrote:http://www.bloomberg.com/news/articles/2016-07-01/chile-peso-rises-to-12-month-high-as-copper-gains-flows-climb


Yea, Chile seems to some how always run counter cycle to everyone else. Generally a sell-off in the developed world equates to a sell-off in latin america. Instead everyone starts betting that Chile is a safe-haven, because everyone else is going start pumping stimulus money in to their economies.

I also sort of suspected the recent strength in the peso was some sort of safe-haven play, coupled with relatively higher interest rates compared to the rest of World. Probably did not help that the credit rating agencies cut the UK rating to bring Chile and the UK in to closer competitors from an investment grade credit rating perspective.

I don't know how much it matters, but last week we had 7 presidents in little Frutillar for the Pacific Alliance meeting. I even had lunch at the same restaurant as Colombia's president. While I was hanging out at my friends restaurant, all the business people were there. They kept taking photos of the volcano and commenting on how beautiful it was. I also wonder if just having that many market movers in the neighborhood for a week, also got some money moving in to Chile as people look around and realize just how stable Chile is from an investment perspective. Right now, out of all those countries, Chile is still in better shape stability wise.

There is suddenly a rush to jump on the Pacific Alliance bandwagon. Even the basket case Mercosur is looking to negotiate trade agreements with the Pacific Aliance, Canada, the U.S., New Zealand. Mercosur was a good idea that was killed by all the competing domestic socialist agendas. Socialist free trade agreements are kind of an oxymoron, and is likely at the heart of what is wrong with European Union. However, when you look at what is making the Pacific Alliance tick, you have Mexico with economic size and proximity to the United States, Peru and Colombia have been adding growth and population to the market, but I think it is Chile's credit rating and stability that is providing economic anchor and credibility to the alliance.

They just have to be careful not to over expand it. Costa Rica is applying to be the next member, but I am not sure what they bring to the table. Mercosur likly failed, because it was too big. Free trade agreements become less and less effective as they expand, with too many competing interests. I think there is also too much of a good thing problem with trade agreements. A little bit of an open market is good, so let's open up even more; when in fact, it starts undermining growth all the way around.
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Re: Chile Peso 2016, starts at 717

Postby admin » Mon Jul 04, 2016 11:44 am

well, here is the chilean central bank holding interest rates at 3.5% in June, and possibly raising rates in the future. Which is compared to the negative interest rates everywhere else, is a lot of ammunition should they need to cut. Still, given the sluggish performance of the economy, doing nothing is pretty much the same as a cut. I have have to give the central bank some credit for not getting carried away like all the rest of the central banks with throwing more and more stimulus money at the economy every time someone sneezes. After that December rate hike, and subsequent market reaction in Jan ./ Feb, I think grandma has gotten gun shy about raising interest rates just because the markets won't like it.

http://finance.yahoo.com/news/chile-cen ... 21314.html
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Re: Chile Peso 2016, starts at 717

Postby admin » Tue Jul 05, 2016 12:33 am

Oh shit!!!! This is not good. Really not good.

http://finance.yahoo.com/news/banks-saw ... 45336.html

Central banks calling fx desks every six hours for updates on their liquity on the surface sounds like a reasonable precation to avoid a lehmen brothers moment; but, on the other hand makes you wonder what is going on under the hood that would make them that attentive to the fx markets (a mostly unregulated area).

This might very well explain these rather unatural moves in the peso. Some one, some where, thinks some one is going to bail some one out. Thus, the strong copper moves, under writing strong peso moves. Moves that, all other things being equal, under normal international market jitters, should have creamed the peso to dollar.

The amount of stresses building in the credit markets, along with all the empty chaimbers in central bank pistols, something has got to give. The idea that central banks are becoming so creative by itself is disturbing, but this one...
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Re: Chile Peso 2016, starts at 717

Postby eeuunikkeiexpat » Tue Jul 05, 2016 1:03 am

I disagree that there have been "strong" copper moves and this is the sole reason for the peso strength. Copper price is still in the dumps from where it was a couple years back. What is different is the lackluster performance of the dollar (as shown by USDX) as a safe haven after a major worldwide economic event. The visible market is indicating this is not like 2008.

Why the peso has not at all been affected and is even strengthening is surprising and screams someone knows something.

But the peso is not where the dollar shunners are going to, have you seen the day's move in gold and silver?

Screen Shot 2016-07-05 at 12.02.23 AM.jpg
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Re: Chile Peso 2016, starts at 717

Postby admin » Tue Jul 05, 2016 11:18 am

Well, stong in the sense that the bottom has not completly fallen out of it as you would expect in a world of revised global GDP numbers cutting expected demand. This morning we are seeing some shine come off of copper.

Still, the peso is freakishly strong.
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Re: Chile Peso 2016, starts at 717

Postby Fugger » Fri Aug 05, 2016 5:24 am

Obviously CLP has been quite strong YTD, so I thought the following GS report extract on copper to be quite interesting. Obviously I would never trade based on an IB recommendation or analysis...

Metal Detector: Copper - entering the eye of the supply storm

[list=]■ Copper prices are broadly flat since the end of last year, despite substantial Chinese credit stimulus, a weaker US dollar, and a substantial rise in copper net speculative positioning. Underperformance has been particularly stark relative to other metals, with zinc +40%, palladium +27%, and nickel +23% over the same period.
■ Our GS copper mine supply tracker (which covers c.60% of global mine supply), updated for 2Q16 results, indicates that copper price weakness over the ytd has in part reflected solid mine supply growth during 1H16. Indeed, the hedging of surplus mine and refined supply likely acted to offset rising net speculative positioning (LME copper open interest has risen 25% ytd). Solid mine supply growth has reflected the ramp up of new mines and lower-than-normal 'disruptions', and has resulted in rising smelter and refinery charges (against seasonal norms).
■ Further copper cost deflation during 1H16 (despite a weaker US dollar) also likely contributed to copper price underperformance, as evidenced by our new quarterly copper costs tracker, detailed in this report. For the producers in our sample - which represents at least 45% of global mine supply, cash costs declined by c.10% in 1H16 relative to 2H15, to $2,500-$2,650/t. Cash costs are down c.20% 2Q16 vs. 1Q-3Q14.
■ Looking ahead, company guidance and our estimates suggest that copper is entering the eye of the supply storm, with our GS supply tracker pointing to c.1mt of incremental copper mine supply between 3Q16 and 1Q17, pre-potential disruption. This "wall of supply" is expected to translate in to higher copper smelter and refinery charges and ultimately, higher refined copper production (set against softening demand growth), and as such we re-iterate our well below consensus price forecast of $4,500/t, $4,200/t and $4,000/t on a 3-/6-/12-mo horizon, respectively.[/list]

1H16 mine supply growth solid, growth to accelerate in 2H16

Over the past few weeks, 19 of the 20 companies included in our GS copper mine supply tracker have reported copper production for 2Q16, with around half of these providing updated annual guidance. Glencore will complete the list when it reports on August 11. For those 20 producers , our production tracker points to an acceleration in supply growth to +10%-15% yoy (+1.1-1.5mt yoy), pre-potential disruption, during 3Q16, 4Q16 and 1Q17, up from +5% during 1H16 yoy. Even if Glencore did not restart its African operations during 1Q17 as we currently assume, our tracker would only moderate from +15% yoy to +13% yoy (c.1.3mt yoy) in 1Q17.

Regarding the 2Q results, production surprised us slightly to the upside due to a strong ramp up at Las Bambas, but guidance overall for the full year was slightly lower, leading us to slightly lower our 2H16 profile from our last GS copper supply tracker estimate in May. These latest production reports are consistent with our annual copper modelling and we leave our balances unchanged. From here the main growth in mine supply on a sequential basis during 2H16 and 1Q17 is expected to come from Grasberg (Indonesia), Escondida (Chile), and Sentinel (Zambia), though further growth in Peru (Cerro Verde / Las Bambas) could also be an important contributor.

Signs of oversupply already evident in copper concentrate market

Smelter margins remain positive, pointing to a surplus of copper concentrate (copper mine supply) relative to smelting capacity. The positive margins, while driven by the concentrate balance, reflect a combination of higher contract and spot treatment charges and falling costs of production. With regards to smelter revenues, fees paid by miners to smelters and refiners (treatment and refining charges, or TC/RCs) continue to rise, and have risen during the first 7 months of 2016 against a normal seasonal decline.

Copper cost deflation continued through 1H16 despite a weaker dollar

Our new GS copper mine cost tracker - which incorporates attributable cash cost data for 14 companies and represents at least c.45% of global mine supply - points to further cost deflation during 1H16. This cost deflation is likely to have undermined the copper price, raising margins for producers given flat US dollar pricing, all else equal. This cost deflation came despite a weaker US dollar. Cash costs declined by c.10% in 1H16 relative to 2H15, and are down c.20% relative to 1Q-3Q14 costs, to $2,500-$2,650/t for those companies covered (representing at least 45% of global mine supply), from $3,200-$3,500/t in 1Q14. Notably, the cost deflation was broad based across the 13 companies which provide copper production cost data, with 12 reporting a decline in production costs.

Source: Goldman Sachs
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Re: Chile Peso 2016, starts at 717

Postby admin » Fri Aug 05, 2016 10:26 am

There was several articles about a report out of the UN (or one of those institutions) recently that caused a major uproar. Can not find any of them now.

The report essentially said that we are not able to fully estimate the production and exports from developing countries of materials, due things like tax evasion, corruption, and so on.

The study specifically included Chile. Where is showed how copper exports to places like the Neatherlands are over priced (think I got that right), yet the Neatherlands imports three times the copper it consumes domestically. Same with most of Europe. Most likly due to tax advantages. In other locations the price of copper was being over priced, again due to tax evasion. Not just in Chile, but tax evasion in the receiving countries. The Chilean goverment got pretty bent out of shape over the accusation.

Same with other developing countries. Imagine Veneuzuela, Brazil, and so on. Think most of the capital flight out of China in recent years has been done through transfer pricing of commodities. Chinese are only allowed to send 50,000 U.S. a year out of the country, but if you can buy say a million dollars worth of copper, claim the price is way higher, then stash the difference in a swiss bank account, problem solved.

It is one of the reasons I take oil production numbers, out most of the biggest oil exporting countries, with a grain of salt.
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Re: Chile Peso 2016, starts at 717

Postby admin » Tue Aug 09, 2016 7:59 pm

hey, how do like those apples?

Here is a snapshot of LatAm sovereign spreads:
SOVEREIGN 8/8 8/5 8/4 1D 10D YTD 2015/16 HIGH
ARGENTINA 460 465 471 -5 -14 - -
BARBADOS 669 669 672 0 0 65 659 (2/11/16)
BRAZIL 293 296 304 -3 -18 -193 542 (2/11/16)
CHILE 67 67 76 0 -4 -19 143 (2/11/16)
COLOMBIA 217 220 233 -3 -11 -72 412 (2/11/16)
COSTA RICA 401 402 411 -1 -2 -116 587 (2/11/16)
DOMINICAN REP 347 352 361 -5 -36 -68 542 (2/11/16)
ECUADOR 922 923 941 -1 6 -393 1765 (2/11/16)
EL SALVADOR 500 501 507 -1 19 -140 840 (2/11/16)
GUATEMALA 241 242 250 -1 3 -61 385 (2/11/16)
JAMAICA 403 404 414 -1 -3 -46 519 (2/11/15)
MEXICO 168 169 177 -1 -6 -26 278 (2/11/16)
PANAMA 167 167 175 0 -6 -39 272 (2/11/16)
PERU 166 166 177 0 -11 -65 291 (2/10/16)
URUGUAY 218 220 231 -2 -19 -50 344 (2/11/16)
VENEZUELA 2631 2679 2711 -48 -45 -161 3713 (2/12/16)
Source: Bank of America Merrill Lynch Master Index


some editing to make this clearer.

Not sure I could tell you what all those numbers mean, but I figure all you need to know is they are many magnitudes better than most of the neighbors.

point is that this explains the relative strength of the peso in the face of all other currencies being hammered by the dollar. slow and steady wins the race in macro economics. Crazy ass wild swings, kill economies. Those are mostly caused by politics.
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Re: Chile Peso 2016, starts at 717

Postby eeuunikkeiexpat » Wed Aug 10, 2016 3:57 pm

Surprising strength in CLP today.

Screen Shot 2016-08-10 at 2.55.34 PM.jpg
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Re: Chile Peso 2016, starts at 717

Postby john » Wed Aug 10, 2016 4:34 pm

eeuunikkeiexpat wrote:Surprising strength in CLP today.

Screen Shot 2016-08-10 at 2.55.34 PM.jpg


Surprising strength indeed. However, Trading Economics' econometric model predicts a weakening of CLP to 699 by the end of 3rd qtr. and to 713 in 12 months time.

http://www.tradingeconomics.com/chile/currency/forecast
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Re: Chile Peso 2016, starts at 717

Postby eeuunikkeiexpat » Wed Aug 10, 2016 8:22 pm

Just like Chile is one of the 8 most dangerous economies said some former central banksters back in late 2014.

Flip a coin or maybe it really is about the future of the Petrodollar.

Actually 713 is nothing as it doesn't even reach record lows against USD. I remember more than a few here predicting 800 to 1000 a short while back, so flip a coin.
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Re: Chile Peso 2016, starts at 717

Postby AHusband » Wed Aug 10, 2016 11:18 pm

600 to 650 is OK, although I would of course prefer 450-550.

750 or above is just ridiculous and I think would cause me to leave early. Which I have been considering in any case.


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