OVERNIGHT NEWS
# Dollar index stabilizes above 92.50 amid largely risk off Asian session, UST 10y yield stays lower after 9bp intra-day drop yesterday on softer ISM, 2y2y forward off 0.9025% low
# Day ahead: FOMC minutes, EC summer economic forecast, Russia CPI, Brazil retail sales, Romania CB f/c to keep rates on hold
# German May industrial production fell 0.3% m/m in May (+17.3% yoy), capital goods -3.4%, consumer goods +4.1%
# Nikkei -0.9%, EUR 10y IRS unch at 0.05%, Brent crude +0.4% at $74.9/b, Gold +0.5% at $1,803/oz
UST 10y on pivotal level: 1.20% next?
USDCOP drivers Tuesday
GLOBAL
Stock futures slightly fall after record close. The S&P500 trade flat, and the Dow -0.06%. Government bond yields fall, with US 10yr yield on 1.401%. Oil prices falls amid OPEC standoff, WTI oil prices are falling -0.49%.
In currencies, EURUSD is trading -0.30%, USDMXN 0.10%, USDBRL 0.79% and USDCOP 0.67%.
COLOMBIA
June annual inflation reached 3.63% and climbed to pre-pandemic levels. Dane updated the variation of the Consumer Price Index (CPI), which for June was -0.05%; in the current year, from 3.13% and annualized it climbed to 3.63%. The data for the last 12 months surprised the market because it is the highest level since the start of the pandemic, since in March 2020 the figure reached 3.86% and began to decline.
New message from President Duque to the rating agencies: with the new Tax, COP 15bn will be collected and a clear message will be given to reduce the debt and the fiscal deficit. The Head of State reiterated which will be the sources of financing for the new Tax Reform. He stated that the sources of financing would be first, the austerity program; two, to strengthen the mechanisms to combat tax evasion; three, the ICA discount that was planned to reach 100% discount will remain at 50% discount as it is today and fourth, there will be a surcharge to the companies that have proposed it themselves and with this we would be generating around COP 15bn of collection without touching the pocket of any natural person of middle class. However, Duque warned that in the future “Colombia has to migrate to a system of greater contribution” of natural persons. Finally, he recognized that in the Tax Reform that former Minister Alberto Carrasquilla tried to promote, the mistake was not having generated consensus.
Colombian Sergio Díaz-Granados was elected as the next president of the Development Bank of Latin America. The Colombian candidate defeated the Argentine Christian Asinelli in the vote of the executive of the Development Bank of Latin America, the second largest in the region, for the period 2021-2026. The vote ended 17-0 because of the agreement reached by the candidates.
Ayer, LatAm FX mostró una diferenciación muy escasa debido a que el sentimiento externo se debilitó con el
retroceso de la renta variable. En este contexto, las divisas del bloque LatAm se depreciaron de manera uniforme.
Las posiciones cortas en USD fueron las favoritas de muchos inversores, y fue probablemente la vuelta de la
volatilidad la que hizo que las recogidas de beneficios y los stop loss entrasen en escena de manera abrupta.
Aunque los bancos centrales de las economías avanzadas mantienen sus posturas flexibles, el cambio de tono de
la Fed podría haber alterado la dinámica de riesgo subyacente, ya que algunos inversores se han desplazado a los
márgenes. Sigue sin estar totalmente claro si la Fed pondrá finalmente en marcha su proceso de reducción del estímulo y, mientras que el actual programa de compra de activos seguirá dando respaldo a LatAm FX durante
más tiempo, no puede descartarse una volatilidad adicional en las divisas conforme el USD vaya ganando tracción.
Pese a su ligera infravaloración, el COP replicó al resto de divisas de LatAm y cotizó de forma más débil hasta
retroceder alrededor de un 0,9%. La debilidad del apetito por el riesgo global afectó negativamente al COP, y el
retroceso de los precios del petróleo tampoco contribuyó a mejorar la situación. A nivel local, varias entidades
cuasi-soberanas experimentaron una rebaja en sus calificaciones debido a su vinculación con el gobierno de
Colombia, lo que intensificó las condiciones desfavorables para los activos locales. Aunque teniendo en cuenta la
reciente rebaja de la calificación de Colombia, estos últimos movimientos no sorprendieron a nadie y siguen
siendo un recordatorio de la continua debilidad fiscal que sigue padeciendo el COP. Desde un punto de vista
técnico, el COP tiene margen de recuperación, pero parece poco probable que la divisa pueda evitar retroceder en
caso de que el riesgo externo termine por aumentar.
Latin America:
Currencies in the region depreciated, in line with a stronger dollar during the session. The largest underperformer was BRL, which depreciated 1.7%, to 5.1840, amid muted domestic headlines and largely driven by external factors. CLP followed, depreciating 1.4%, to 746.76, amid a less supportive external backdrop during the session and after some initial delays in kicking off the constitutional rewriting process over the weekend, which included some social demonstrations and technical difficulties.
Local rates in the region saw mixed performance. Chilean and Colombian rates ended lower, tracking USTs, while local rates in Brazil, Mexico, and Peru ended the session higher. In Mexico, TIIEs ended 7bp-13bp higher on Tuesday amid local government bond auctions, which flagged lower demand on a relative basis for 5y nominal bonds (bid-to-cover: 1.65). Meanwhile, t-bills, floaters, and linkers saw better demand overall (bid to cover: 2.0). Mexico’s 5y TIIE rates ended 10bp higher at 6.795%. In Brazil, despite muted local headlines, local rates sold off 8bp-13bp in DIs, with Jan 31s up 10bp at 9.260%.