Closing our tactical short CLPCOP trade
KEY MESSAGES
We are closing our tactical short CLPCOP trade as our
stop-loss level has been triggered.
The dynamics of the Colombian peso has changed since
President Duque withdrew the tax reform bill.
The market has been extremely volatile and the mood
has turned bearish.
We think if no progress is made on the tax reform bill, it
could increase the risk of a downgrade of the
sovereign’s credit rating earlier than expected.
We do not expect the currency to depreciate to levels
seen last year due to supportive factors such as high oil
prices and technical position on the COP, which was
already oversold before the reform bill was withdrawn .
Maintaining our discipline to our target and stop-loss
levels, we decided to close the position.
Strategy: Close our short CLPCOP trade. See details on
allocation, price, maturity, target and stop-loss in the
next column.
Although our new FX BEER+ model still sees value in
the COP (the model is suggesting a fair value of around
3536), we have decided to stick with our target and stoploss levels and have closed the trade.
President Márquez’s decision to withdraw the tax reform
bill has changed the market dynamics and risks an
earlier than expected credit rating downgrade of the
sovereign, putting further pressure on our trade.
Our EMFX sentiment index shows that positioning on
the COP has been oversold.
Strategy: Close short CLPCOP; allocation USD20mn,
cross at 5.5131, maturity: June-IMM; for a total loss of
4.19% (USD 807,000)
1) Leg 1: Close USD20mn of short USDCOP; price:
3873 (spot ref. 3858); maturity: June-IMM; Loss of
4.04% (USD778,589);
2) Leg 2: Close USD20mn of long USDCLP; price:
702.50 (spot ref. 702.13); maturity: June-IMM; Loss
of 0.14% (USD28,473)
Domestic stock indices falter late after European advance; broader commodity strength dovetails with dollar bloc currency outperformance; PMIs point to services’ resilience; BNM, Norges Bank, BoE, CBT, CNB meetings ahead; US 10y at 1.566% (-2.6bp)
In Colombia, the COPxIBR curve twist flattened with the 2y ending 1.5bp higher at 3.21% and the 10y ending 4.5bp lower at 5.84%. This occurred amid commentary from the central bank’s co-director, who stated “there’s an increased risk perception, an increase in the nation’s risk premiums, an increased depreciation in the currency, giving less space for the current monetary stance”, suggesting a tightening in the policy stance may be warranted.
La volatilidad del COP sigue siendo elevada
Ayer, el COP retrocedió alrededor de un 0,5% y volvió a comportarse peor que el resto de divisas de LatAm
mientras la incertidumbre política nacional continúa ejerciendo presión sobre la divisa. A nivel local, el ministro de
Finanzas de Colombia afirmó expresamente que la intención del gobierno es conservar su calificación de grado de
inversión, pero sigue sin estar claro cuáles serán las fuentes de los nuevos ingresos fiscales. En ausencia de una
mayor claridad, las decisiones de inversión podrían retrasarse por el momento y limitar el potencial alcista del
COP. Al mismo tiempo, las protestas y las revueltas continúan en un primer plano mientras el proceso de reforma avanza, lo que plantea riesgos bajistas potenciales. Por tanto, pese a la fortaleza del petróleo y la infravaloración
del COP, la volatilidad de la divisa podría seguir siendo elevada durante más tiempo.
USDCOP drivers Wednesday
GLOBAL
Stock Futures rise, pointing to S&P 500 rebounding. The S&P500 rises 0.45% and Dow Jones 0.31%. Government bond yields rise slightly, with US 10yr yield on 1.594% and WTI oil prices are rising 1.35%.
In currencies, EURUSD is trading -0.08%, USDMXN -0.17%, USDBRL -0.98% and USDCOP -0.24%.
COLOMBIA
The marches and protests continue in Colombia. Although from many sectors they celebrated the withdrawal of the tax reform, the strike is not over. In several parts of the country, mobilizations and blockades by transporters continue. In the department of Valle, for example, food supply chains have already begun to be affected. On the other hand, Bogota presented 30 civilians and 13 police officers injured because of clashes during the demonstrations. In addition, in the city of Cali, eight civilians died, which the UN denounced.
The new Ministry of Finance will bet on a tax reform of COP 14bn. The project will use part of the resources to guarantee social assistance and adjust the country’s fiscal accounts slightly. Regarding the possible content of the reform, Restrepo said that the proposal would not affect the population that has been harmed by the negative effects of the coronavirus pandemic. On the other hand, President Ivan Duque had already warned that the new reform project would not have significant changes in VAT or income tax, as contemplated in the previously filed reform. The Finance Minister said that the government’s objective is to be able to expand social programs, such as Solidarity Income and VAT compensation, in order to continue helping the most vulnerable population, but stressed that to achieve this, resources are needed to finance these initiatives.
Banco de la Republica sees inflation in Colombia above 3% by the end of 2021. The Bank considers that in the first quarter of the year the economy maintained a positive trend. According to BanRep, current projections continue to be surrounded by a level of uncertainty “much higher than usual”, because of the effects that the coronavirus pandemic continues to generate, such as the third peak that the country is experiencing and the new economic closures in some capital cities. The document details that for 2021 and 2022 the inflation expectations of economic analysts suggest that inflation would stand at 2.8% and 3.1%, respectively.
The Ministry of Health reported 14,551 new cases of covid-19 and 463 deaths. The health portfolio reported that to date 75,627 people have died from the virus and the active cases reached 96,751. At the regional level, the Ministry announced that Bogotá ranked first with the number of infections in a day with 4,776 cases, followed by Antioquia with 1,862, Cundinamarca 892, Valle 780, Atlántico 948 and Barranquilla 758.