Comentario económico 15 de septiembre de 2022

G10 (Angus): 

On the risk front the main event is now the FOMC and with 100bps now being discussed the demand for USDs is likely to remain, especially as the market has been forced to reduce as EURUSD squeezed towards 1.02, the larger risk however is some sort of FX intervention. The BoJ historically does a rate check before direct intervention and the BoJ are getting more desperate. I think we are very close to actual intervention (could come as early as today when the US markets get in) where the BoJ step in and sell a large amount of USDJPY, this combined with the DXY being very close to major technical resistance could see the USD come under pressure in G10 for a brief period. I say brief period because I believe faster money names would come in and buy any 2/3% move lower in USDJPY.

Overall, fundamentals remain poor and largely unchanged in G10, 2y EURUSD swap differentials have widened again and the ECB are not going to be able to out hawk the FED, so EURUSD remains a sell. The domestic picture in the UK remains truly terrible with domestic yields spiking, double digit inflation, national strikes, currency collapsing, recession looming, massive current account deficit, horrific fiscal balances, and resources vulnerability a 50bp or 75bp hike from the BoE isn’t going to offer much support to Cable. Should you wish to reduce outright USD risk I would say sell USDCAD to negate this risk as the energy crisis is likely to keep energy commodities well supported.

However I’m not running outright cable shorts, at the moment because the pair seemed to offer an opportunity when vol was low, skew was high and people hadn’t grappled the terms of trade and asset flow hit of weak equity markets and high energy prices. Now its on every FT page, vol isn’t cheap, and maybe skew should be where it is, so when I say fundamentals support it lower, they do, but it is now well discussed and harder to play in spot FX.

Asia (Charmaine):

I think Asia has become quite mixed now, while the overall bias is still to be long USD, I think more care has to go into picking which pairs.

In China, in spite of the fact that PBOC keeps fixing the fix rate consistently lower than survey, the market continues to like buying USD there. I think it is worth noting while they are engaged in mild intervention, they haven’t shown the same level of aggressiveness as the last time we were trading at these levels. They also commented last week that the market should not fixate on 7 specifically, again indicating that they may not be aggressive here either. At the end of the day, the market is max negative on China’s outlook at the moment and the PBOC is probably the only thing standing in the way. We like trading from the long USD side still.

India has been very difficult with markets stubbornly holding on to 80 in spot. Until such point breaks, I think the market will continue to move sideways in spite all signs pointing to the fact that the pair should be higher. We have seen mostly RHS interest in the IMM roll thus far but I think there are some RMs that are short USDINR because the carry is too attractive to ignore especially with RBI holding spot down.

In THB, I prefer rather trade from the short USD side to play for gradual economic recovery on the basis of tourism. However, models are long USD still as evidenced by the IMM rolls, which is based on momentum & the trade deficit. As a result, this is not a super high conviction trade for me, I am trying to keep the position small to be able to trade it around.

Outside of these, KRW is trading poorly as it is a natural gas importer but BOK is getting more and more vocal about how much the ccy has moved; PHP has the deficit, so similar to India the natural tendency is to trade higher. IDR is probably the only ray of hope in Asia, and also has the CB who is the most keen to hold the pair down & they have shown willingness to hike while at the same time removing subsidies so really nothing that much to be negative about in Indo.

More broadly, the CNH and JPY weakness seem justified, driven by low rates/low growth and poor prospects for China, and increasing rates differential against the JPY, very much adding to the broader weakness in the region. Positioning is well established though, and the USD rally extended, so it becomes increasingly difficult to add to USD longs but as Tuesday’s data suggests, we could be in for more pain for EMFX.

Latam & ZAR (Cedric):

Investors have turned once again more constructive on Latam, thanks to higher nominal rates vs EM and G10, and even positive real rates in Brazil. Personally, I do like the BRL trade and I think the upcoming elections are a lot more “certain” than the last few elections we have had in Latam and Brazil. There is obviously still a lot of risks in the trade when it comes to the cabinet nominations, but I like to be long BRL while still bullish on the USD overall, so using BRL mostly as RV.

In COP and CLP, we have seen this several times this year where investors try to buy some carry and enter RV plays with Latam on the long side, but timing has been difficult and the positions would have been profitable only if one had to hold large PnL swings (like in CLP). I think that while there is a case for the trade given the extended broad USD move, we need to be careful given the large current account deficit these countries are running.

The recent Chile referendum is likely to bring some moderation from the leftist government, but overall, I don’t see the momentum of flows turning strongly enough to justify USDCLP trading below 900 in a sustainable way. I like to buy dips below that level.

In COP, I believe positioning is already short COP hence I prefer to be cautious, but inflation is not yet under control and is likely to continue to weigh on the currency. I like to buy dips below 4300 for a move back towards 4600.