Sterling undaunted by fiscal tightening
OVERNIGHT NEWS
# Dollar index consolidates around 106.50, 10y UST yield +3bp at 3.72%. Euro stays lower on report of step down in ECB hike to 50bp in December. Fed’s Waller (voter) says recent data made him “more comfortable” with reduced 50bp hike next month.
# Day ahead: US jobless claims, Philly Fed. Fed speakers Bullard, Bowman, Mester, Jefferson, Kashkari. ECB’s Villeroy, BoE’s Pill and Tenreyro. UK Autumn statement. Bond auctions from Spain and France.
# Japan: trade deficit widens to ¥2,162.3bn in October from ¥2,094.3bn in September. Exports +25.3% yoy, imports +53.5%.
# Australia employment +32.2k in September, full-time +47.1k. Unemployment rate drops to 3.4%, participation rate unchanged at 66.5%. AUD/USD -0.4% at 0.6710, 3y AGB yield -5bp at 3.20%.
# SG Special Report: Central bank balance sheets peaked this year and will keep shrinking in 2023.
# Nikkei -0.3%, EUR 10y IRS unch at 2.725%, Brent crude -0.7% at $92.2/b, Gold -0.6% at $1,763/oz.
GBP/USD – from 1.03 to 1.19 in two months thanks to lower Gilt yields and softer dollar
NY Open – Still a rates show
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A bounceback in US yields and risk aversion has set the tone. US 2s5s curve has traded back above Wednesday’s lows but with limited catalysts, let’s see whether this move will sustain. Equity sentiment deteriorated over the European morning session, weighing on US equity futures that are set to open in the red. We suspect that flows in limited liquidity conditions are exacerbating the move. Otherwise, AUD is struggling despite a strong labor report overnight, and other high-beta currencies such as ZAR, SEK and NOK are also underperforming. CNH also suffered, despite reiteration from the Chinese government on accelerating Covid vaccination. As we go to print, UK Chancellor Hunt is presenting the Autumn Budget. Detailed documents will follow at 07:30 EST. We watch the announcement closely, but we don’t expect it to be a gamechanger for GBP. BoE’s Pill will make an appearance at 07:30 EST, while Tenreyro will speak at 09:30. In the US, Fedspeak starts with Bullard at 08:00 EST, Bowman at 09:15, Mester at 09:40, Jefferson and Kashkari at 10:40, and Kashkari again at 13:45. We could see more divergence between the doves and hawks today. At 08:30 EST, we also get US initial jobless and continuing claims, the print should still indicate a tight labor market. Other central bank speakers are also on the cards – ECB’s Villeroy will speak at 10:00 EST while SNB’s Maechler and Moser will speak at 12:30. The latter’s comments will be more interesting to watch on the conversation of FX intervention. BRL and HUF underperformance may be sustained amid headlines while IDR and PHP saw a hike of 50bps and 75bps, fully expected by markets. |
COP – USDCOP has been moving higher today following a couple of strong performing sessions. Aside from the risk assets correction and a similar move from CLP, locally we are paying a large attention into Nutresa’s tender offer which has its closing date on this Friday. Tender offer shows the possibility of a 2Bn inflow if it is filled. Legal back and forth in Nutresa’s largest holder (Sura) keeps changing the probability of the tender offer being filled as market is now pricing a lower chance of the tender offer happening. We continue seeing COP vulnerable to headline risks and flow movements as we now aim to 5,000 again. Flow wise, our local trader Santiago Calvache saw mainly cash inflows and some RM outflows. On inflation outlook, Banrep published their monthly expectations survey last night, showing one-year inflation expectations at 7.70% (rising 32bps) and year-end 2023 expectations at 7.47% (up 54bps). However, the two-year ahead measure showed a small 2bp correction to 4.68%, showing a dip for the first time in months. The results are mixed for Banrep, but the latter is relevant as it sits in the monetary policy horizon and consistent with Banrep’s more forward-looking approach.
Geopolitical tensions ease, USD pares overnight strength; USTs twist flatten after sturdy retail sales, solid 20y auction; Gilts bull-flatten before UK Autumn Budget statement; ECB’s de Cos argues QT should be “very gradual and predictable”; 5y China swap rates rise; US 10y at 3.690% (-8.0bp).