COP: Colombia Monetary Policy minutes at 23:00 BST. Banrep’s unanimous +25bp on March 30 was followed by dovish comments from Governor Villar, who said that “inflation is approaching its ceiling and is expected to descend for 2023.”. Our traders think Banrep may start cutting rates as soon as H2 of this year, and minutes may disclose that likelihood.
COP: Davivienda Colombia PMI Mfg at 16:00 BST for Mar. (April 03); Exports FOB at 16:00 BST for Feb. (April 04); Colombia Monetary Policy Minutes at 23:00 BST. (April 04); CPI YoY at 12:00 BST for Mar. (April 05); Holy Thursday. (April 06); Good Friday. (April 07)
COP – COP had a choppy session today after the expected 25bps hike yesterday, pausing the strengthening trend. February Urban Unemployment rate printed at 11.5%, lower than expected of 13.1%. Flow wise, our trader saw some inflows from the NDF space early in the day.
Month- and quarter- end closes confirmed further downside in US 2y yield, the bull steepening trend in US curves, and further upside in gold.
Otherwise, month-end repositioning dominated global price action. USD looked through softer core PCE even as Fedspeak kept focus on inflation. EUR ignored a strong EU core CPI to globally weaken on lower EU yields. CAD reversed early gains from strong GDP, as clients preferred USD as a safe-haven into the weekend. Unwillingness to add risk into next week likewise fueled the rally in global fixed income.
Holidays will reduce activity globally next week, but USD payrolls, CPIs across Asia (IDR, KRW, PHP, THB), Latam (BRL, UYU, COP, MXN, CLP, PEN), Europe (CHF), and the Middle East (TRY), and EUR core PPI will be important to watch. AUD and NZD central bank meetings will be relevant, too. For more, check out our Cheatsheet – G10 & EM Week Ahead: No rest for the market.
Long CLP/COP 20-Mar-23 5.76 6.15 5.67 We expect CLP to outperform regional peers such as COP, given higher relative exposure to China’s rebound
narrative (which so far remains intact), cleaner positioning and strongly improving fundamentals. A prematurely dovish BCCh.
We don’t see valuations as attractive enough to switch back to a bullish view on EM and stick to relative value. After prolonged hiking cycles and banking sector volatility, our focus is on growth risks, not chasing the rally. Watch global PMIs, ISM and NFP this week.
Dislike:Long CLP/COP: We prefer to short COP versus CLP, as
technicals and fundamentals for the former look less supportive
and as from a trade standpoint (as proxied by BIS REER weights)
COP remains relatively equally exposed to both the US and China.
We remain sidelined in IBR for now, but we do note that an increasingly more
dovish BanRep poses significant steepening risks to the curve. However,
price action in the near term should continue to be driven by global factors.