Gaming Fed terminal, RBA +25bp, ANC backs president
OVERNIGHT NEWS
# Dollar stays higher after above forecast ISM yesterday, 2y/10y UST flattens to -82bp. Services prices sticky at 70.0, business activity highest in a year. Timiraos in WSJ writes brisk wage growth may lead Fed to consider raising rates above 5% in 2023.
# Day ahead: US trade balance, Chile forecast to leave key rate at 11.25%. S. Africa 3Q GDP, UK benchmark supply.
# Australia: RBA raises CRT by 25bp to 3.10%, says medium term inflation expectations remain ‘well anchored’. Statement reiterates further tightening ahead but not on pre-set course. 3y AGB yield +7bp at 3.08%, AUD/USD +0.5% at 0.6735.
# SG Weekly Technicals: 10Y UST, EUR 10Y IRS, EUR/USD, EUR/PLN, USD/CNH, USD/BRL, USD/ZAR
# Nikkei +0.2%, EUR 10y IRS +1.5bp at 2.615%, Brent crude +0.6% at $83.2/b, Gold +0.3% at $1,774/oz.
Stronger euro not reining in inflation expectations
COP – USDCOP moved higher after consolidation over the last two trading sessions. We see 4,800 as support and 4,841 as the next resistance. On local data, CPI for November printed at 12.53% YoY (Citi 12.27%, 12.22% prior), while core inflation printed at 9.48% YoY (9.15% prior). October Exports fell to $4.213B (estimate $4.650B) from $4.779B in September. Flow wise, our local trader Santiago Calvache has seen some inflows from Corp.NY Open – Mixed bag
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A modest improvement in risk sentiment is only seeing a follow-through in high-beta currencies, with equities struggling to make gains, while US yields are only slightly lower. USD trades relatively flat, though overnight managed to hold gains following strong US ISM services. Overnight, Beijing authorities announced that they will no longer be requiring PCR test results to enter some public places, but the reopening theme is starting to lose some steam, with Hang Seng closing -0.40% on the day, though USDCNH remained below the 7.0 level. Overnight, KRW was the worst performer, hampered by USD strength, as well as strong outflows. Also, AUD saw the RBA hike its cash rate by 25bps, in line with expectations, with the statement maintaining optionality on future hikes. In Europe, there were little notable snippets. ECB’s Lane said that we are yet to see inflation peaking, though hinted at a downshift towards 50bps given the scale of rate hikes already conducted. While there are no major scheduled events for the US and Europe, local developments in EM were plenty. In South Africa, lawmakers delayed the vote to instigate impeachment proceedings to December 13, with the ANC providing support for President Ramaphosa. In Hungary, EU finance ministers also delayed the decision on whether to suspend EU funds, potentially till next week. Brazilian congress will start debating on the Transition Amendment Bill today, headline noise is expected regarding the size and duration of the bill. Finally, Chile expect no change to their interest rate at 16:00 EST |
Strong ISM Services catalyzes UST bear-flattening, pricing of Fed rate cuts is faded; USD pares overnight losses and is top G10 performer; Reversals in Brent, WTI crude encapsulate broader risk-off tone; ECB’s Makhlouf sees scenarios where the ECB “goes beyond 3%”; US 10y at 3.574% (+8.7bp).
Latin America:
Latam currencies depreciated across the board as global risk sold-off amid slightly stronger-than-expected US economic data and as the market priced out some of the Fed rate cuts along the US curve. MXN, CLP, COP, and BRL weakened 1.5%, 1.4%, 1.3%, and 1.2% to 19.71, 896, 4840, and 5.28, respectively. PEN outperformed the region with a 0.5% decline to 3.86. The magnitude of the MXN sell-off was aided by technicals, specifically heavy short USD/MXN positioning.
Local rates adjusted higher, alongside US rates. In Brazil, DIs underperformed the region, as rates rose 20-25bp; January 2028 DIs ended 25bp higher at 12.68%. In Mexico, TIIE 2s10s bear-steepened 3bp to -125bp; the 10y rose 13bp to 8.46%. Chile local rates rallied 1-5bp across the curve; the 1y outperformed with a 5bp rally to 9.39%.