OVERNIGHT NEWS
* Major FX and bonds quiet as week concludes, Brent extends weekly gain to 9% after OPEC+ urges full compliance on production quotas, hints at possible change in policy by December
* Day ahead: Russia CB forecast to hold key rate at 4.25%; ECB and Fed speakers, Michigan confidence, Canada retail sales
* Weekly FX: JPY, GBP and NZD best in G10; ZAR shines in EM after SARB surprise status quo, TRY and HUF underperform
* Brexit: EC President Ursula von der Leyen is ‘convinced’ EU-UK trade deal is still possible, calls internal market bill a “very unpleasant surprise” and says “ball is in the field of the UK to restore trust” – FT
* Nikkei +0.18%, EUR 10y IRS +1bp at -0.22%, Brent crude +0.8% at $43.6/b
Risk sentiment remains fragile this morning with mixed equity markets. In Asia, Nikkei was up
0.2%, Hang Seng up 0.5% while in Europe the SX5E is 0.2% higher, led by a rebound in the
European tech sector. News that the ECB is moving closer to lifting bank dividend ban is
helping risk sentiment on the SX7E, yet the index is still down on the day. In the US, the tech
sector continues to underperform (yesterday, Nasdaq : -1.3%, SPX : -0.84%), with Nasdaq
futures pointing 1.3% lower before the market open (SPX futures are 0.8% down).
While market sentiment remains fragile, we believe that the fundamentals behind the rally are
still in place and we are not expecting the recent sell-off in the US as a start of a bear market.
In our Cross-asset portfolio, we are keeping our long bias on European stocks .
In FX, EURUSD has retraced all of its post FOMC meeting loss and GBPUSD has erased its
post BOE meeting decline (with BOE announcing that negative rate policy is being kept under
review) after Von Der Leyen said she was convinced EU-UK trade deal is still possible.
Las asimetrías persisten en las divisas de LatAm
La combinación de factores que afectó a las divisas de LatAm ayer fue mixta, y lo mismo sucedió con sus
comportamientos. La mayor debilidad en la renta variable estadounidense, un USD más débil, la firmeza en los
precios de las materias primas y la cautela general en el sentimiento por el riesgo hicieron que las divisas de la
región tomasen direcciones ligeramente distintas. De hecho, la mayor parte de LatAm empezó el día con
debilidad, pero divisas de alto beta como el MXN y el BRL recuperaron parte de las pérdidas hacia el final de la
sesión. Por otro lado, las divisas andinas mantuvieron su débil tendencia y no se beneficiaron del repunte en los
precios de las materias primas con la excepción del PEN, cuyo comportamiento se asemejó al de las divisas de
alto beta pese al intenso flujo de noticias políticas a nivel local. En este momento, el mercado parece estar
buscando direccionalidad y, es probable que este tipo de asimetrías en el comportamiento persistan ante la
ausencia de catalizadores locales.
El COP se debilita como consecuencia del sentimiento general del mercado
Ayer, el COP registró un comportamiento más débil que el resto de divisas de LatAm al retroceder alrededor de un
0,54%. La fortaleza de los precios del petróleo y la debilidad del USD no pudieron evitar el retroceso del COP, que
cotizó a la baja durante la sesión a la par con otros mercados. La ausencia de noticias destacadas en el mercado
local capaces de imprimir dirección al COP nos hace inferir que el comportamiento relativamente más débil de la
divisa fue resultado de la aversión al riesgo generalizada, que terminó imponiéndose a otros factores positivos al
final de la sesión.
With little impulse from risk appetite, the USD is mostly steady this morning
ahead of Fed speakers and US consumer confidence data. The lack of
movement in the European session is somewhat in contrast to the USD weakness
seen against Asian currencies overnight, perhaps reflective of generally higher Asian
equity markets. US consumer confidence data for September is the only noteworthy
release. Unlike measures of activity, consumer confidence has not delivered a
V-shaped profile. The consensus today expects it to remain subdued. The inflation
expectations component of the survey may also garner some attention in light of the
Fed’s new policy framework. Breakeven inflation rates, having moved consistently
higher since the start of May, tailed off somewhat in September. The calendar also
has Fed speakers lined up with James Bullard (10:00EST), Raphael Bostic (12:00)
and the dovish dissenter Neel Kashkari (15:00) all on the slate.
The MXN’s ongoing strong performance has taken USD-MXN back below 21.00 for the
first time since March. The MXN is also the best performing currency vs the USD in Q3,
although it is still down around 11% year to date. We continue to hold a more positive view on
the MXN, in contrast to much of the region. Mexico will benefit most from an activity pick-up in
the US (particularly the auto sector, which is witnessing a strong bounce): it is in relatively better
fiscal shape than much of the region (having offered less fiscal support during the COVID-19
pandemic) and, perhaps most importantly, it offers the highest nominal (and real) interest rates
in the region and among the highest in the world. Lower FX volatility of late is also making the
carry trade more attractive. While that could change with any hiccup in global equities and risk
sentiment, for now we retain our positive outlook on the currency.