Flight-to-quality recedes on possible steps toward de-escalation; RUB appreciates ~1.9% against USD; US 30y yields rise, steepening 2s30s and 5s30s curves; Gilts extend flattening trend; Riksbank Governor Ingves highlights “slight” risk inflation remains above target; US 10y at 2.043% (+5.6bp).
Latin America:
Latam currency performance was once again mixed, despite a weaker USD and improved risk appetite. CLP was the main outperformer in the region, appreciating ~1.5%, as copper prices rallied by 0.6%. BRL was the second-best performer in the region, gaining 0.8% before finally consolidating below 5.20, closing the session at ~5.18. In contrast, PEN and COP both depreciated by ~0.15%, despite a lack of negative local developments. Price action in rates was also somewhat mixed, with small rallies across the DI (~14bp across most tenors) and TIIE curves (5-6bp in the front-end). In contrast, CLPxCAM rates continued to sell off, with significant pressure in the belly of the curve. 5y CLPxCAM closed 11bp higher, at 6.27%.
The risk rally from the NY session paused as markets assessed the state of play. G10 FX sat in a tight range while UST yields were down, led by the front end as we wait for FOMC minutes today. Overnight, the nominations for Biden’s Fed nominees faced resistance in the Senate and Bloomberg reported that they have been delayed indefinitely. Geopolitical tensions remained top of mind with headlines from Putin’s meeting with Germany Chancellor Schulz showing there are a number of issues to be resolved. In China, we saw PPI and CPI data come in a tad light.
Looking forward, we remind that NATO ministers are set to meet from February 16-17, We also note a reference by Kyodo News that G7 is preparing for an emergency Foreign Ministers meeting in Mid-February. We therefore remain sensitive to news on geopolitical tensions in the near run. FOMC minutes will also be top of mind today at 19:00 GMT, where we will look for indications of an early end to asset purchases. The US also sees data in the form of retail Sales at 13:30 GMT.
Elsewhere, CPI data is due in GBP (07:00 GMT), CAD (13:30 GMT), and RUB (16:00 GMT). NOK will sight a GDP at 07:00 GMT and EUR a Eurozone Industrial Production at 10:00 GMT. Lastly we flag that THB is on holiday today.
BoE could hike again in March after CPI beat
OVERNIGHT NEWS
# Risk assets and currencies bounce on hopes of Russia/Nato de-escalation, Euro bond yields scale new cycle highs, Euro Stoxx 50 on track to recapture 200dma (4,162), USD/RUB retreats below 75.00.
# UK CPI accelerates to 5.5% yoy in January, above forecast. Core jumps to 4.4%. Goods prices +9.0%, services +6.8%.
# China CPI slows to 0.9% yoy in January from 1.5% in December, food prices – 3.8% yoy. PPI slows to 9.1% yoy from 10.3%. PBoC governor Yi Gang vows more support for weak links of economy. USD/CNY steady at 6.3390.
# Norway 4Q mainland GDP +1.4% qoq, above forecast. Private consumption +3.1%, gross investment +4.1%.
# Day ahead: Germany 10y auction, January FOMC minutes, US retail sales and industrial output, Canada and South Arica CPI.
# Nikkei +2.2%, EUR 10y IRS unch at 0.87%, Brent crude +0.5% at $93.8/b, Gold +0.1% at $1,855/oz
Updated bond yield scenarios for 2022
