The longest week is almost over. Broader bank concerns persist as it is clear we are not out of the woods yet. Positive developments in the US and no new news in Europe has helped stabilize sentiment, but market participants are cautious going into weekend headline risk. Positive risk appetite in Asia was driven by China developments, with policies to support the development of cross-border economic cooperation zones and a 25bps RRR rate cut. However, this dried up over the course of the European session outside of commodities, with EUR assets treading water rather than rallying further.
Markets will be on watch for any bank-related headlines into and over the weekend. The US equity cash open will provide guidance, though quarterly triple witching will bring more choppiness than usual. University of Michigan inflation expectations is the known event risk of the day at 10:00 EDT, where consensus expects no change from February. Given FOMC repricing and proximity to Wednesday’s meeting, watch for upside risks. Looking ahead, other central banks also come into focus, including expectations for Colombia, Switzerland and the UK.
US bank action to instill confidence in banking system sparks risk-positive shift; ECB delivers 50bp hike, removes forward guidance; 10y BTP-Bund spread tightens ~8bp; USTs bear-flatten, Fed hike probabilities rise; Fed’s H.4.1 details credit extension, reserves uptick; US 10y at 3.577% (+12.2bp)
Latin America:
Latam currencies had a strong session, supported by somewhat improved risk appetite and a weaker USD, while local headlines remained quiet. MXN led regional gains, up by 1.3%, to close at 18.72. In contrast, CLP lagged, 0.2% weaker, despite supportive copper price action and a lack of new local developments. Latam local curves mildly steepened, as tenors followed US rates higher across the board; 1y CLPxCAM closed 18bp higher (at 9.84%), while 1y IBR closed 12bp higher, at 12.20%.