Goodbye 1Q, second black swan in two years
OVERNIGHT NEWS
# Curtain falls today on 1Q. Oil prices drop 4.5% as US mulls release of 1mnb bpd from SPR for several months, total release could be as much as 180mn barrels. Ukraine/Russia negotiations to resume tomorrow.
# Day ahead: US PCE and Chicago PMI, Fed speaker Williams, ECB’s Lane and de Guindos. Colombia CB forecast to raise rates by 150bp to 5.50%, Czech CB forecast to raise key rate by 50bp to 5.00%.
# France HICP inflation accelerates to 5.1% in March from 4.2% in February, above forecast. Energy accelerates to 28.9% yoy from 21.1%. Consumer spending +0.8% m/m in February.
# China: March composite PMI drops to 48.8 in March, lowest since March 2020. Manufacturing declines to 49.5 from 50.2 and services weaken to 48.4 from 51.6 on lockdowns. State council and PBoC pledge to stabilize the economy.
# Nikkei -0.7%, EUR 10y IRS unchanged at 1.275%, Brent crude -4.8% at $108/b, Gold -0.3% at $1,926/oz
Inflation in France is trailing Germany, Italy and Spain
Oil prices were in focus today as a report overnight said that the Biden administration is weighing a plan to release roughly a million barrels of oil per day from US reserves over a period of several months, citing unidentified individuals, causing oil prices to drop significantly. DXY found a bid in the Europe session, while NOK plunged drastically with the Norges Bank announcing to purchase foreign exchange on behalf of the government equivalent of NOK 2,000mn per day in April. Over in EMFX, HUF dropped over 1% as well, with the one-week deposit rate left unchanged. European data prints saw French CPI hot, while Italian inflation printed below consensus. Chinese CPI fell below 50 for the first time since August.
Looking ahead, oil remains in focus with OPEC+ meeting at 08:00 EST and Biden’s speech at 13:30 EST, the latter more significant to markets. USD will look forward to Initial jobless and continuing claims, PCE deflator data and some Fedspeak ahead of NFP tomorrow. CAD sees GDP data, as we look to rate decisions in CZK and COP in which Citi Economics expect a 50bps and 150bps hike respectively.
· COP: Overnight Lending Rate is expected at 14:00 EST. Citi Economics expects Banrep to increase policy rates by 150bps. This would imply an acceleration from the 100bp hike undertaken back in January. Inflation has surprised on the upside twice since then, leading inflation expectations to rise as a result, with inflation expectations for 2023 already sitting on the 4% target band ceiling. In addition, new headwinds for inflation are emerging, which should prompt the Board to take a preemptive approach to adjusting their policy stance.
Latin America:
Latam currencies ended mixed, despite a weaker dollar during the session. MXN outperformed in the region, appreciating 0.6% to 19.866. PEN followed, appreciating 0.3% to 3.7148.
Much of the session’s attention was on Chile, amid the recent dovish shift in policy guidance. CLP underperformed in the region, depreciating 1.1% to 789.04 as the central bank underdelivered, hiking just 150bp (C: 175bp) in its recent policy decision meeting and providing more dovish guidance for its upcoming meeting, signaling a slower pace of hikes and a lower policy rate corridor than current market pricing, in its quarterly policy report. This significantly bull-steepened the curve 65bp in 2s10s to -115bp, as 1y rallied 93bp to 7.91% and 2y rallied 83bp to 7.22%. Colombia local rates seemed to follow, with 2s10s bull-steepening 22bp to -62bp, with the 1y falling 32bp to 8.53% and 2y dropping 28bp to 8.58%.