USTs bear-flatten on better-than-feared retail sales; ECB relays message to carry on with hikes, EGBs bear-flatten; USD gains, Fed’s Waller says policy needs to be tight for “substantial period of time”; NZD, AUD underperform as risk wanes; SGD falls with MAS pause; US 10y at 3.513% (+6.8bp)
Latin America:
Subdued risk appetite and a strong USD mildly pressured Latin American currencies. CLP was the region’s laggard, 0.3% weaker, while its major peers (BRL, MXN, and COP) closed relatively unchanged for the session (mild underperformance, up to 0.1%). Local rates followed US Treasuries higher, without a notable pattern across curves. January 2025 DIs, 1y IBR, and 10Y TIIE all closed ~11bp higher, despite a lack of local data across the region.
I’m not talking about Arsenal’s title challenge, which still has legs despite recent performance. Yet, EM currencies are more likely to suffer a setback as US growth concerns mount through 2Q, raising spillover risks. We turn bullish on USD and bearish on EM FX, but stay neutral on rates and credit.
COP COP continues to stand out as the cheapest major LatAm
currency, despite its recent rally. While the currency should
become vulnerable to a broader pullback in risk appetite, we prefer
to remain sidelined for now.
We remain sidelined in IBR for now, but we do note that an increasingly more
dovish BanRep poses significant steepening risks to the curve. However,
price action in the near term should continue to be driven by global factors
Colombia Colombia is still trading cheap versus peers. Even a 75bp rally versus peers would still leave 2.5 rating downgrades priced in.
Following an investor trip, we are also slightly more optimistic on Colombia’s macro outlook. Finally, we also think that any
new issuance is unlikely any time soon despite Colombia having the ability to do so
Colombia Colombia is still trading cheap versus peers. Even a 75bp rally versus peers would still leave 2.5 rating downgrades priced in.
Following an investor trip, we are also slightly more optimistic on Colombia’s macro outlook. Finally, we also think that any
new issuance is unlikely any time soon despite Colombia having the ability to do so.
USDCOP: Price has dropped below pivotal support at 4,500 (2023 lows & 76.4% initial pivot line). A weekly close below this level suggests further downside with the following support being between 4,152 – 4,119 (2020 highs & August 22’ lows).