NY Open – On edge
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USDJPY was in focus overnight. A brief dip below 159 looks like jitters than any MoF intervention, the pair has broadly recovered losses at print. The pace of ascent here is more important than levels, so nervousness will continue. Elsewhere, Treasuries trade broadly flat though USD trended weaker, CE3 currencies see the strongest gains. Equities tread higher. Germany IFO printed soft, in line with recent PMI and ZEW trends. Fedspeak should be more important than data (Dallas Fed Manuf. Activity prints at 10:30). Goolsbee speaks at 08:30, Daly at 14:00. BoC Governor Macklem features at 13:30. In EM, MXN CPI prints at 08:00 EDT, while BRL watches out for the weekly economist survey. Concerns about cabinet announcements keep ZAR trading choppy. |
Colombia
Economics: We expect BanRep to lower its policy rate by 50bp to 11.25% on Friday but the decision is likely to be split, with two votes
for a bigger cut. In our view, most policymakers are unprepared to accelerate easing as inflation expectations have yet to improve and
uncertainty about the fiscal outlook persists. Regarding the latter, we think the board will welcome the government’s announcement of
reduced public spending but will prefer to have more evidence about the feasibility of such an adjustment before deciding to cut the policy
rate by more than 50bp.
With other central banks in Latam adopting a more conservative stance, we think BanRep has less room for more aggressive cuts and
will keep prioritizing FX stability. This points to an additional 50bp rate cut in July.
Strategy: The key event will be the BanRep decision. As this is highly likely to be in line with expectations (50bp cut), the market will be
particularly focused on any dovish hints that may suggest an accelerated easing pace in the coming months. In the absence of such
hints, the curves should remain driven by beta to USTs as the presentation of the fiscal framework on 14 June relieved fiscal concerns
somewhat and reduced market anxiety. The market is currently giving the benefit of the doubt to the government after the announcement
of spending cuts for ~$5b to compensate for lower tax revenues. From a multi-month perspective, we expect local curves to continue to
build premium in the long end, reflecting fiscal and political risks. On the FX side, continued unwinding of the carry trade will likely be
reflected in further COP underperformance given the weak fundamental position of the Colombian economy. We are keeping half of our
long CLPCOP position to express this view