OVERNIGHT NEWS
# Euro profit taking subsides, yields and periphery carry over flattening theme after ECB pushed back against tapering on Friday, “closely monitoring yields”. Industrial metals extend losses after
# China says “zero tolerance” for monopolies in commodity spot and futures markets and for speculation and hoarding. PBoC reiterates commitment to maintain yuan exchange rate at “basically stable” levels.
# CFTC weekly FX positions: EUR longs climb to 13.7% of OI, JPY shorts rose to 32.9%, GBP longs cut to 14.4%, CAD longs increased to 22.2%, AUD longs up to 2.2% and CHF shorts to 9.7%; UST 10y long positioning raised to 0.75% of OI
# Nikkei +0.2%, EUR 10y IRS unch at 0.16%, Brent crude +0.7% at $66.9/b, Gold +0.15% at $1,885/oz
Hungary unlikely to raise rates this week but may flag a move in June. Most EM rates discounted to go up by year-end.
USDCOP drivers Friday
GLOBAL
Stock futures tick up ahead of economic data. The S&P500 rises 0.34% and Dow 0.41%. Government bond yields fall, with US 10yr yield on 1.610% and WTI oil prices are rising 1.99%.
In currencies, EURUSD is trading -0.2%, USDMXN 0.1%, USDBRL -0.2% and USDCOP -0.1%.
COLOMBIA
Standard & Poor’s downgraded several firms after the recent sovereign rating decision The first of them was Ecopetrol. The state-owned company reported that the risk-rating agency S&P Global Ratings lowered the company’s credit rating from BBB- (negative outlook) to BB + (stable outlook). The agency also lowered Banco Davivienda’s International issuer note. The sovereign ratings affect those of Banco Davivienda, given its great exposure to country risk and the highly sensitive nature of the company to sovereign stress. Another entity that reported the same decision was Financiera de Desarrollo Nacional (FDN), whose international rating was downgraded to BB +.
Fedesarollo estimates that, despite the lockdown measures and national strike, Colombia’s GDP could grow above 15% in the second quarter, but with an impact on employment. For the executive director of Fedesarrollo, Luis Fernando Mejía, the second quarter of the year would be good in terms of economic growth in Colombia, despite the mobility restriction measures in April and the social mobilizations in May. According to calculations by Fedesarrollo, the economy could grow by orders of magnitude close to 12%, 13% or even 15%, responding to a basic statistical effect. The above, since the second quarter of last year was the worst in the country’s economic history, with a contraction of 15.7%
The Health Ministry reported 16,086 new infections of covid-19 and 490 deaths from the virus. The number of recovered amounted to 2,979,233 and the number of active cases reached 104,273. Bogotá ranked first with the number of infections in a day with 4,917 cases, followed by Antioquia with 1,721, Cundinamarca with 1,207 and Santander with 832.
From this weekend begins the scheduling of stage three of vaccination against Covid-19 in Colombia. People between 50 and 59 years old will begin to be cited for inoculation, as well as those between 16 and 59 years old and have comorbidities such as hypertensive diseases, acute ischemic heart disease, HIV, cancer, cerebrovascular disease or diabetes, among others. At this stage, the mayors and governors of the country will also be vaccinated.
PMIs and Fed minutes did little to change the overall allocation to USD (long ~30%) as FX sentiment improved slightly. CLP is the favourite short in our cross-sectional portfolio. CEEMEA exhibited a substantial upgrade with a ~17.5% increase in allocation led by CZK, TRY and ILS.
See EM Quant Toolkit Primer and our Curve Factor for a full explanation of our models.
USD allocation practically unchanged after preliminary PMIs and Fed minutes: Long USD allocation versus EMFX remained flat at ~30% (Exhibit 1) after three consecutive weeks of declines. Better FX sentiment offset improved equity-driven momentum in the US. G10 FX positioning remains flat.
CLP is now the preferred underweight after last weekend’s constituent assembly result: This put the CLP underweight as the second largest since we have history. The curve factor is short again after a brief flattening on the back of a less dovish BCCh. Equity momentum turned short as well. COP became the second-largest short as our value proxy suggests that the currency is no longer one of the cheapest currencies (Exhibit 10 ).
The CEEMEA region presented a large upgrade with an increase of 17.5% of the portfolio share at the expense of LatAm: TRY and CZK exhibited the largest increases, with the former looking increasingly ‘cheap’ while the latter was helped by better sentiment as VRP turned positive (in substitution to HUF). ILS followed with a 7.5% increase, helped by better equity-driven momentum (Exhibit 3).
Notes: The “buy” and “sell” signals are purely rule-based trading strategies and only serve as an input in our decision-making framework. The performance data provided in this document is a hypothetical illustration of mathematical principles; it does not predict or project the performance of an investment or investment strategy. Past performance is no guarantee of future results.
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