OVERNIGHT NEWS
# Stocks pare weekly gains before US CPI, 10y UST backs up to 1.51%. Commodity currencies AUD, NOK and CAD excel in G10, Latam shines in EM.
# China: PBoC steps up effort to curtail yuan strength. Fixes mid-point at 6.3702/USD, 179pips below consensus, largest deviation on record. Average deviation in December at +32bp. USD/CNY -0.2% at 6.3650
# Day ahead: 7% handle for US CPI? Inflation also scheduled for Czech and Brazil. Markets seek clarification from Lagarde after reports yesterday of possible changes by ECB next week in PEPP reinvestment timeline/geographic allocation.
# UK October GDP +0.1% m/m, below forecast. Manufacturing output flat, goods trade deficit narrows to £2.1bn. Tories drop 3pts in YouGov poll to 33%, Labour +4 to 37%.
# Weekly Technicals: 10Y BTP, UK 10Y IRS, AUD/NZD, EUR/HUF, USD/CNH, Copper
# Nikkei -1%, EUR 10y IRS +1bp at 0.124%, Brent crude -0.5% at $74.1/b, Gold -0.3% at $1,772/oz
7-handle for US CPI in November?
US real yields march higher during NY hours and UST 30y supply tails; NOK underperforms as crude oil rally falters; USD/CNY spikes as the PBOC raises the FX reserve requirement; markets await US CPI print; US 10y at 1.499% (-2.2bp)
Latin America:
A stronger USD and weak risk appetite pressured Latam currencies, which ended the day broadly weaker. The main underperformers were CLP and BRL, which depreciated by 1% and 0.8%, respectively. BRL’s underperformance occurred despite a more hawkish BCB tone, though we note the latest statement validated existing market pricing. As such, the sell-off in front-end DIs was relatively mild, with Jan 23s closing 26bp higher and the terminal rate pricing shifting from 12.25% to 12.50%. Most regional curves followed the broader price action across USTs and flattened.
Latam FX weakens after midweek holidays, what’s next
Latam FX returns from midweek holidays to see several notable price moves and weakness across the region:
· COP continues to trade around the psychologically significant 3900 handle after temporarily breaking it earlier in the session. Our trader, Santiago Calvache, notes that price action is largely due to flows and catching up on Wednesday’s risk-on session. Mixed flows amidst a poor liquidity environment are continuing Thursday, and Calvache flags strong USDCOP support at 3890, which, if broken, could take the pair all the way to 3850.