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The RBNZ started the show with the first 50bps hike within G10 central banks, but surprised markets with a slight dovish twist. NZD longs were caught out and the kiwi has since been the worst performer in G10, with front end steepening in the rates space. We look to see whether the BoC follows the trend and also hikes their base rate by 50bps, as expected by Citi Economics. GBP saw the final data print this week with an upside surprise in CPI, causing Citi Economics to change the base case to 3 consecutive hikes in May, June and August.
But that’s not all. The steepening bias in the US yield curve was retained overnight. Data in the form of PPI is less relevant after CPI, with US markets more focused on Q1 earnings today. Following Brainard, we also heard from Bullard and Barkin overnight. USDJPY continues to gain now crossing 126, with the next level to note is the psychological resistance of 130, despite soft verbal intervention overnight. Latam is data print heavy while CLP awaits minutes at 08:30 EDT, with ARS expects National CPI YoY at 15:00 EDT and BRL expecting Retail Sales for February at 08:00 ED
OVERNIGHT NEWS
# Euro bond yields and swaps pivot higher before ECB tomorrow. Yields fell yesterday on below forecast core US CPI. Dollar modestly bid after Fed hawk Bullard (voter) says it is fantasy to think modest rate rises will tame inflation (FT).
# Day ahead: BoC consensus forecast +50bp to 1.0%, QT announcement possible. Benchmark supply from US, Germany, Italy.
# RBNZ raises OCR by 50bp to 1.50%, consensus was 25bp. MPC agrees policy “path of least regret” is to increase the OCR more now, rather than later. Sees rate peak at 3.25% in 2023. NZD/USD -0.1% at 0.6845, 2y yield -15bp at 3.10%.
# UK CPI jumps to 7.0% yoy in March from 6.2% in February. Core up to 5.7%. Goods +9.4% yoy, services +4.0%, energy +27.6%.
# China trade surplus surprisingly widens to $47.4bn in March from $30.6bn in February, exports +14.7% yoy and imports -0.1%.
# Nikkei +1.9%, EUR 10y IRS +5bp to 1.547%, Brent crude+0.29% at $104.93/b, Gold -0.27% at $1,968/oz
Bank of Canada forecast to raise rates by 50bp today. Implied curve running in parallel with the Fed.
Latin America:
Latam currency performance was somewhat mixed, in line with broader risk appetite. CLP was the main outperformer of the session, closing 1.6% stronger and partially retracing recent losses, despite a lack of new local developments. Finance Minister Marcel explained that the government is contemplating an alternative to the fifth pension fund withdrawal bill, which would reduce allowed withdrawals to one-tenth of the amount proposed by the original bill but allow citizens to prepay existing debts and allow local pension funds to avoid large asset sales. MXN and BRL also ended the session slightly stronger, appreciating 0.67% and 0.32%, respectively. PEN was the main underperformer in the region, closing 0.42% weaker, as a congressional committee in Peru passed a pensions withdrawal bill, which would allow for PEN30b in total withdrawals. The proposal has yet to be fully approved by Congress. The price action in local rates was also somewhat mixed, as US Treasuries prompted small rallies across the TIIE, IBR, and CAM curves. However, Brazil DI rates underperformed, particularly in the long end, as January 2031 DIs closed 11bp higher, at 11.83%.