OVERNIGHT NEWS
* Core yield curves maintain steepening bias ahead of German 2027, UK 10y and UST 10y supply; Trump says ‘not interested’ in reopening US-China trade talks, US blocks investment in Chinese stocks by government retirement fund
* US CPI today, SG f/cast 0.5% yoy, five Fed speakers, Powell discusses economy tomorrow; Fed starts buying corp debt ETFs;
* China: April CPI slows from 4.3% to 3.3% yoy, pork prices +96.9% yoy, food prices +14.8%; PPI deflation worsens to -3.1%
* Norway 1Q mainland GDP contracts 2.1% qoq, above forecast; March lockdown measures subtracted 2.3ppts
* Nikkei -0.12%, EUR 10y IRS +1bp to -0.11%, Brent crude +0.6% to $29.8/b
Risky assets going sideways with a modest negative bias for equities. At the end of a
earnings season with EPS down about 7.5% for the S&P, investors are focussing on the
easing of the lockdowns with fears that a second wave may happen. So far countries that
have easier lockdown measures (such as Korea or Germany in Europe) have indeed
experienced some clusters of virus but have been able to contain them so far. The mood is
therefore (very) moderately optimistic as there is an asymmetry in the outcomes in case
countries have to go back to stricter measures Overnight, China PPI came on the lower side
raising concerns about deflation coming from China.
El COP consolida, aunque los riesgos bajistas persisten
El COP, que retrocedió alrededor de un 0,1%, registró uno de los mejores comportamientos del espacio de divisas
de LatAm pese a la caída del 3% del Brent. La semana pasada, el COP logró repuntar con la mejora del optimismo
externo y la subida del precio del crudo. Sin embargo, aún puede ser pronto para anticipar un repunte económico
rápido tanto en Colombia como en los países desarrollados. Mientras que la recuperación del precio del petróleo
llega a una pausa natural conforme el USDCOP se aproxima a su soporte técnico, la presión alcista podría volver al
cruce. Pese a salir de la posición larga en USDCOP en 3,880 el viernes, volvemos a favorecer esta operación en el
cruce manteniendo el stop loss en 3840 conforme el lento proceso de recuperación económica debilita los
ingresos de las empresas y el apetito de inversión.
Risk appetite continues to struggle for meaningful direction with markets
struggling to find any change among the notable drivers. The market mood is
sufficiently fickle that it cannot even sustain a theme for a day. Yesterday, we had
“risk on” in FX before it faltered in the European session. Today, we had “risk off” for
the most part overnight with some stabilisation this morning. For FX, the lack of
direction is illustrated in the AUD which has been choppy but directionless. A
renewed focus on US-China relations and some cherry-picking of COVID-19 case
data provided the after-the-fact rationalisation for the “risk off” mood. But these are
flimsy foundations and one could as easily have pointed to easing lockdown
measures and the start of the Fed’s scheme to buy corporate bond ETFs as
justification for “risk on”.
The topic of whether the US administration will prevent a key fund from
investing in Chinese equities has resurfaced. Reports suggest the Administration
has sent a letter to the Chair of the Federal Retirement Thrift Investment Board,
instructing him to “halt all steps” that would deploy more of the fund’s money into
Chinese companies (Fox News, Bloomberg). The fund was due to reallocate a
portion of its portfolio to China in order to match the weightings in the MSCI All
Country World Index. The substance of the reports is not new, with similar
suggestions made in the media over the last two weeks. However, after the earlier
relief surrounding news that senior officials from the US and China were continuing
trade talks, this issue is a reminder that US-China relations are far from
straightforward. However, it only had a temporary impact on the risk environment.
A Fed programme that enables it to buy corporate-bond ETFs gets underway
today, although Fed rhetoric seems more focused on pushing back on negative
rates as a policy tool. The Fed’s Secondary Market Corporate Credit Facility
(SMCCF) will buy mostly investment grade bonds, and marks the first time the central
bank has bought ETFs. It illustrates the diverse tool kit the Fed has adopted to
support the economy during the pandemic. However, that diversity looks unlikely to
extend to negative rates, judging by Fed rhetoric. Fed Funds futures contracts for
2021 have at times flirted with some modest probability that the policy rate could turn
negative. Yesterday, the Fed’s Charles Evans said “I don’t anticipate that being a tool
we would be using in the U.S” while Raphael Bostic said “I am not a big fan of going
into the negative rate territory.” (Bloomberg). Today we will hear from Federal
Reserve presidents James Bullard, Loretta Mester and Patrick Harker.
GLOBAL
*U.S. index futures retreat amid mixed global market
*9am: Fed’s Bullard Speaks on the Economic Outlook
*9am: Fed’s Kashkari Discuses the Economy During Coronavirus
*10am: Fed’s Harker Discusses the Impact of Covid-19
*10am: Fed’s Quarles Appears Before Senate Banking Committee
*8:30am: U.S. CPI MoM, April, est. -0.8%, prior -0.4%
*White House Cuts Off Savings Fund’s Investment in China Stocks
*China May Weigh Voiding Trade Deal: Global Times Cites Sources
*China Steps Up American Soybean Buying With Million-Ton Purchase
*Wuhan has ordered officials to test its entire population of 11 million people
*The U.K.’s first ever 10-year syndicated bond offering attracted record demand,
*The Bank of England may need to ease policy further as officials stand ready to do what is needed to prop up inflation
*Australian business conditions deteriorated further in April, weakening across the trading, profitability and employment segments
*China April Producer Prices -3.1% y/y; Est. -2.5%
*Italy Can´t Handle Debt Load Without EU, Austria Kurz Says
*Vietnam Central Bank To Cut Refinancing Rate to 4.5% from 5%
COLOMBIA
*Colombia Delivers More Bad News for American Ethanol Producers
*Ecopetrol First Quarter Net Income COP133 Bln, -95% Y/y