Push it to the limit
Best of Wire | FX in focus | Chart of the Day | New York Ranges | Other Market Ranges | Major Economics Releases
USD OIS rates now see nearly 90% chance of a 50bp hike in March and 170bps for 2022. Sentiment was driven by an upside surprise in US CPI followed by impromptu, hawkish Fedspeak, collectively leaving investors asking whether intermeeting hikes should now be expected. USD did not benefit but note that Citi Economics revised its base case to now expect a 50bp hike in March, followed by four 25bp hikes in May, June, September and December (150bp of total hikes in 2022).
Central banks elsewhere also provided highlights. SEK weakened on the dovish Riksbank surprise our strategists were expecting, while MXN was little moved despite a more hawkish Banxico. PEN broadly outperformed ahead of its rate decision at 23:00 GMT but may see a slight retracement if its central bank leans dovish as our rates trader expects.
Looking ahead to Friday, RUB is the solo central bank meeting though unscheduled central bank speakers will likely follow up on Thursday’s strong US CPI print. USD awaits Michigan sentiment data, where we’ll watch 1y and 5-10y inflation expectations, while CHF and HUF gear up for CPI prints of their own. BRL gets an update on economic activity, with economic growth on the agenda for GBP and industrial production figures lined up for INR. JPY awaits a local holiday, but we’ll watch if USDJPY finally breaks above the 116 handle reached at NY close Thursday.
COP (+0.5%) was one of the strongest performs Thursday, with price action following the rest of EM FX. USDCOP closed at 3920 despite our local trader seeing good COP selling interest from corporate clients. Remind that Colombia’s government will cut agricultural tariffs and input costs to curb inflation that has largely been coming from increased food prices. Also, Citi Latam FX Strategy recently put on a new long BRLCOP option structure, noting that, with elections coming up in March, USDCOP has upside, which is reflected in their new trade.
OVERNIGHT NEWS
# Dollar ends week on a high, risk assets slide after Bullard (FOMC voter) says open to 50bp rate increase, backs 100bp by July. 10y UST scales high of 2.05% after CPI surges to 7.5% in January, 5s/30s flatten to 32bp. Banxico last night raised rates by 50bp to 6.0%.
# Day ahead: Russia CB decision: SG f/c +75bp to 9.25%, Michigan consumer confidence, ECB speakers, Hungary CPI
# UK December GDP -0.2% m/m, above forecast -0.6%. 4Q preliminary GDP +1.0% qoq (6.5% yoy). Private consumption +1.2% qoq, business investment +0.9%, government spending +1.5%, exports +4.9%.
# Nikkei +0.4%, EUR 10y IRS +1bp at 0.83%, Brent crude -0.7% at $90.1/b, Gold -0.6% at $1,824/oz
Russia CB forecast to raise the key rate by 75bp to 9.25%
Latin America:
Latam currencies ended mixed, led by PEN, with MXN the laggard. PEN appreciated 1.8%, to 3.74, during the session ahead of the BCRP policy rate decision. CLP followed, appreciating 0.9%, to 805.6, during the session, amid continued front-loading of policy rate hikes and an increased terminal rate pricing after a higher-than-expected inflation print earlier in the week. MXN lagged peers, weakening 0.4%, to 20.56, after hiking in line with expectations (50bp) toward the end of the session while the statement saw little marginal increase in hawkish rhetoric. The currency was also pressured by higher US real rates particularly in the front end.
Local rates ended higher across the board, driven largely by higher US rates during the session. In Mexico, TIIE rates shifted 10-20bp higher across most of the curve. The 1y TIIE ended the session 15bp higher at 7.45%. Colombia bear-flattened with 1s5s flattening another 7bp, to -5bp, with the 1y 25bp higher at 7.74%. In Chile, CLPxCAM similarly bear-flattened with 2s10s flattening 8bp, to 117bp, with the 2y ending 13bp higher, to 7.14%. In Brazil, DIs rates were largely contained, only shifting 5bp higher to 13bp across most of the curve with Jan 24s ending 13bp higher, at 11.85%.