Investors Take Profits, Flee From Emergent Countries

The US central bank kept its interest rate unchanged and stated that their forecast is for the country’s unemployment rate to be at 6.5 % by the end of 2014, with the inflation rate lower than 2 %. Ben Bernanke, who should be replaced as a FED president by next January, said that The QE continues for now but it can be reduced soon if the economy keeps improving. Risk assets fell sharply with this new information and several analysts believe that 65 billion dollars will now be purchased by the FED, as opposed to the 85 billion that was being purchased to date.

The mood became even more tense with the drop of the Chinese manufacturers index and the revised GDP growth estimates for that country to “only” 7%, combined with a drying up of resources in the overnight market (which required intervention by the government).

The emerging markets, which had been suffering already by the withdrawing of foreign investments, now suffer even more, with Brazil leading the losses in the stock exchanges , 22.8 % in reals and 29.95 % in US dollars.

The continuation of the public manifestations exposes the Brazilian reality of the country not having done any structural reforms, which scares the investors who see better opportunities elsewhere.

Last Thursday, after the FOMC meeting, all commodities fell, and the dollar currency reigned supreme again, not only due to the optimism regarding the recovery in the USA, but also by the fact that this currency is basically the only safe harbor for scared money.

The main stock exchanges in the world fell between 2.0 % and 5.5 %, and the commodities indexes dropped 2.0 %. Only the futures for wheat, pork and cattle stayed in positive territory last week, and the biggest losers were silver at -8.27 % and gold at -6.6 % along with the energy complex.

Of course coffee did not stay away from the bloodbath, with the Arabica making new lows in more than 4 years and Robusta ending virtually unchanged but not only before diving again.

Some funds apparently stopped adding to their sorts at the C market, but others got tired to hold on to their longs and liquidated some of them. Origins worried about the unending bleeding also rushed to do some fixing, and the differentials did not narrow more due to the dollar strength, which offsets a little the losses at the ICE.

The movement in the physical should get better at the sign of any recovery of the terminal, a fact that limits the potential for any significant recovery. The Brazilian real trading at 2.2768 (we thought that 2.30 would happen but not this quickly) is another reason for the bulls not to be too excited.

With the Robusta, news of wash-outs in Indonesia and producers resisting to sell their coffee in Vietnam give some encouragement to some, although this could be only a postponing to their sacrifice.

In Brazil, the National Monetary Council approved the financing for the coffee plantations without any intervention by the government to withdrawal coffee – which certainly will not happen now after so many other priorities being discussed in light of the ongoing protests that have spread throughout practically the whole country.

Therefore, the scenario is not good for the bulls. I still maintain my opinion that the breaching of the US$ 100 cents per pound should not happen at this juncture – except of course if the real is devalued above 2.30 – while any recovery should lose strength before it gets to the US$ 130 cents per pound.

We make note here of the first lot of Brazilian coffee (320 bags) that was approved to be part of the certificates at ICE, which does not mean that someone will deliver this coffee since it is worth a lot more in the spot.