A complete change of plans occurred after an explosion in the service module prevented the spacecraft from reaching the Moon and forced the crew to fight for survival. The story depicted in the Apollo 13 mission, the one whose phrase "Houston, we have a problem" became famous, was the analogy used in Kinea's latest letter to refer to the shift in monetary policies.
“On several fronts, the mission has changed. The original plan was a world of converging inflation, falling interest rates, and technology generating cash. But the last few months have shown that the trajectory has become more complex,” writes the asset manager, who has R$ 150 billion under management.
With inflation above target for "too long" in the United States, Kinea expects the new Federal Reserve chairman, Kevin Warsh, to need to choose a tougher monetary policy to "bring the spaceship back down to Earth." "This means tighter financial conditions, higher US interest rates, and a stronger dollar."
Although the FOMC unanimously maintained the rate at 3.5% to 3.75% on June 17, the committee's dot plot began to signal an upward bias, with the median for the end of 2026 rising from 3.4% to 3.8%. In the wake of the decision, the market began to price in a near two-thirds chance of at least one interest rate hike by December, compared to around 43% at the beginning of the month.
According to Kinea, the question is no longer whether the United States will raise interest rates, but when and by how much. To take advantage of this movement, the asset manager says it has maintained a long position in the dollar, while it sees a contrary scenario for the Mexican peso and the euro.
According to Kinea, the need for a change of course also applies to the Brazilian Central Bank. In its most recent decision, the Copom (Monetary Policy Committee) cut the Selic rate by 0.25 percentage points for the third consecutive time, reducing the rate to 14.25%. But a long cycle of cuts is no longer expected. After several upward revisions of interest rates, the Focus bulletin now predicts only one more reduction by the end of the year, bringing the Selic rate to 14%.
"Brazil is raising interest rates, but it can't cut them back to normal levels. What previously seemed like an emergency rate is starting to look like a new equilibrium rate," says the asset manager.
According to Kinea's assessment, the fiscal situation has once again added risk, while the economy remains heated and the labor market tight. "What is striking is that, even at this level, the Central Bank is unable to initiate a consistent cycle of cuts."
Despite historically low unemployment in the country, Kinea still sees a risk that the end of the 6x1 work schedule will increase labor costs, resulting in cost pass-through and, consequently, higher inflation.
As a consequence, Kinea says, even when the external shock improves, the country's yield curves are priced in more slowly. "Brazil lags behind because the problem isn't just oil, war, or the Fed. It's fiscal, labor market, credit, exchange rate, and structural risk premium."
Kinea adds that the Fed's outlook should be another limiting factor in the interest rate cut cycle in Brazil. But, according to the asset manager, it is still more likely that the Central Bank will continue lowering the Selic rate, rather than starting to raise it. "[But] the resumption of the cycle will depend on a combination of factors, both external and domestic."
In Brazil, the asset manager states that it has maintained low directional exposure in the stock market and has given preference to long and short operations, while trading interest rates at a "very small size" and without significant exposure to the real.
