Categories: Markets

Greg Coffey’s Hedge Fund Says Markets Are Wrong on Brazil Rates

(Bloomberg) — Macro trader Greg Coffey is betting there is room for Brazil’s central bank to begin a more aggressive easing cycle when policymakers convene next month.

Coffey, whose Kirkoswald Asset Management has posted double-digit returns over the past four years, said Brazil’s central bank would be “absolutely justified” in cutting interest rates by a full percentage point at its next meeting. , according to an excerpt of an investor letter seen. via Bloomberg.

The country’s “underlying economy, fiscal structure development, and more importantly inflation dynamics, call for more than” more than a quarter-point reduction in market prices, Kirkoswald wrote in the letter, which sent to investors on Friday.

Coffey rose to prominence as one of the best-performing and top-paid traders at GLG Partners, where he previously managed $7 billion. He returned to trading in 2018 and launched Kirkoswald, which last year returned 19.4%.

The company declined to comment on the letter.

Kirkoswald’s call to Brazil follows last month’s minutes from the central bank’s most recent meeting in which policymakers led by Roberto Campos Neto said the committee saw a possibility of starting a ” parsimonious” change in interest rates – which currently sit at a six-year high.

“Roberto led the hiking cycle when the Fed screamed transient, and will undoubtedly be the torch bearer for central bankers around the world to be aggressive in cutting the cycle in August,” the fund said.

Read More: Greg Coffey’s Macro Fund Raises 19% Return on Unexpected Run

Brazilian swap rate traders are currently pricing in the benchmark Selic rate to decline by around 34 basis points in August, while digital options trading at B3 also shows traders are more confident that the central that bank will choose the most prudent option and kick off its cycle with a 25 basis-point reduction.

Inflation data shocked the downside and Brazil’s credit outlook was raised by S&P Global Ratings in June amid the emergence of a new fiscal framework. In the past few days, retail sales and a proxy for the country’s gross domestic product have been much lower than expected.

–With help from Davison Santana.