Latam: The regional score continues to be the highlight,
holding the only short USD score in EM. Despite the fact
that the USDBRL and USDCLP hold the shortest USD
positions in EM, other currencies were the highlights due
to expressive variations. The MXN went down to 22%
from 44%, the biggest variation among its peers, followed
by the USDPEN and the USDCOP, which remain dollar
bullish; the former at 63% from 77% and the latter, the
longest dollar position in EM, at 79% from 93%.
Inflation expectations split US vs Euro and UK
OVERNIGHT NEWS
# Bond yields trickle lower drop after sharp bounce yesterday on spill over from Gilts to Bunds and Treasuries, US 20y supply.
# Day ahead: Norges Bank forecast to raise key rate by 50bp to 1.75%. Euro final July CPI, US jobless claims, Philly Fed. Turkey CB forecast to keep rates on hold at 14.0%.
# FOMC minutes: participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.
# Australia employment unexpectedly fall by 40.9k jobs in July, full-time -86.9k. Floods blamed. Unemployment rate falls to a 48-year low of 3.4% as participation rate drops to 66.4%. AUD/USD flat, 3y AGB yield +4bp at 3.03%.
# Nikkei -0.9%, EUR 10y IRS +2bp at 1.91%, Brent crude flat at $93.7/b, Gold flat at $1,762/oz.
Diverging inflation expectation: 10y break-evens up in the UK and euro, down in the US and Canada
Latin America:
Latam currencies ended the session weaker, especially Andean pairs, which closed ahead of the release of the July FOMC minutes. Market participants expected a more hawkish tilt, but the more balanced tone led to a recovery in risk assets broadly, which benefitted MXN and BRL, as they traded after the Fed minutes release. COP and CLP lagged, depreciating 2.3% to 4336 and 1.9% to 898, respectively. MXN followed and ended the session 0.4% weaker at 19.99. BRL and PEN were largely unchanged, with BRL 0.2% weaker to 5.16 and PEN flat at 3.84.
In local rates, most curves ended the session higher, alongside US rates. The key underperformer was CLPxCAM, where 2s10s bear-flattened 8bp to -288bp; 2y rates ended 21bp higher at 9.49%. In Brazil, DIs followed as January 2027 rates ended 14bp higher at 11.55%, while COPxIBR performance was similar; 5y COPxIBR ended 14bp higher at 9.13%. In Mexico, TIIE rates followed, with a vertical shift of ~10bp across most tenors from 1y onward; 5y TIIE ended the session 10bp higher at 8.23%. PeruGB rates were the most contained as rates only rose 1-4bp across most of the curve; PeruGB 2032s shifted 3bp higher to 7.78%.