COP: Some profit-taking on short USDCOP trade
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COP was the worst performer in Latam yesterday (-60bp) – we have seen outflows from HF + Corps. We are now watching 4150 & 4136 on the downside and 4220 & 4250 on the upside. USDCOP reached a fresh 10-month low on Friday at 4,136.75 before facing dollar buying pressure as many investors took profit on the short USD trade. COP is still the best performer in EM on a YTD basis (15.67%) just before MXN (13.31%). Locally, Congress enters last week of legislature & reform debates continue. Our economists remain skeptical of healthcare reform reaching necessary majorities in the short term. On the other hand, the pension reform has seen more consensus and has a higher likelihood of advancing. |
Risk sentiment is on a positive tone ahead of the highly-anticipated June FOMC decision. It was a typical pre-FOMC session with activity light in both Asia and European morning – USTs are broadly unchanged, equities are modestly higher, and the FX complex trades well against a weak USD. In Asia, headlines of a dissolvement of Japan’s lower house of parliament gained attention, the decision hinging on a potential no-confidence vote on Friday. SEK CPIF ex-Energy surpassed expectations, suggesting strong probability of a 25bps hike in June.
Citi Economics are out-of-consensus expecting a 25bps hike from the FOMC at 14:00 EDT. Regardless of the hike, the focus is also on the tone, language and forecasts from the bank. This should imply further hawkishness even if the Fed pauses. In Latam, Brazil awaits retail sales (08:00), Argentina watches for CPI data (10:00). Elsewhere, TRY is reversing losses post Erdogan’s comments implying flexibility on monetary policy.