MEXICO: Banorte On Mexico Inflation/Banxico Policy
Oct-26 13:20
- Although the headline decline is positive, Banorte remain cautious as pressures in core prices prevail, which in turn could lead to a new rise of the headline going into year-end. Energy has helped in the last fortnights, but the market remains fragile. Banorte reiterate their year-end forecast at 9.0% y/y, with risks that seem tilted slightly to the downside.
- Banorte believe most Banxico Board members remain concerned about inflation dynamics, exhibiting an even more hawkish tone in the latest minutes. Moreover, the latest central bank survey showed a renewed increase in inflation expectations for this year and 2023. They reiterate their call of a 75bps hike on Nov 10, following a move of the same magnitude from the Fed on Nov 2.
- The curve is pricing a slightly more aggressive scenario than Banorte’s terminal rate call of 11.00% at the end of 1Q23. They expect volatility to continue, mainly in short-term rates, given high uncertainty about the duration and magnitude of restrictive cycles.
- Despite a growing attractiveness in long-term Mbonos – particularly tenors Nov’38 and Nov’42 –, they reaffirm their preference for relative value strategies and maintain their recommendation to pay TIIE-IRS (26x1) and receive 2-year SOFR.
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US TSYS: Early Eurodollar/SOFR/Treasury Option Roundup
Sep-26 13:05
Mixed overnight-early NY trade includes fair amount of upside call buying from specs looking to fade the continued selling in underlying vs. pick-up in put and vol buyers amid chatter of BOE emergency rate hike after the CB hiked 50bp last Thu.
- SOFR Options:
- Block, 10,000 SFRV 95.43/95.56 put spds, 4.0
- +8,000 short Mar 97.50/98.00 call spds, 2.75 ref 95.795
- 3,500 SFRZ2 96.37/96.50/96.62/96.75 put condors
- Block, 2,000 short Dec 96.75/96.87 call spds, 1.0 vs. 95.55/0.05%
- Block, 3,000 short Oct 96.25/96.75 call spds, 1.5 vs. 95.57/0.05%
- Eurodollar Options:
- 8,500 Dec 94.68/95.12 1.5x1 put spds
- 3,000 short Oct 95.00/95.50 put spds
- 2,000 Dec 95.56 calls
- Treasury Options:
- +6,000 TYX 110/114 strangles, 59 (adds to 10k block at 58)
- 7,000 FVZ2 110 calls, 15.5
- Block, 10,000 TYZ2 120 calls, 6 ref 111-30
- 5,000 TYZ2 117.5 calls, 15 ref 111-29.5
- 5,000 TYZ2 118 calls, 13 ref: 111-29.5
- 1,750 FVX2 105.5 puts, 17
- 4,000 FVX 106.5 puts, 32 ref 107-05.75
- Block, 5,000 TYX 114 calls, 31
- Block, 10,000 FVX2 106.75/108.25 2x1 put spds, 12
- Block, 5,000 FVX 106.5 puts, 34
- Block, 5,000 TYX2 110 puts, 31
- Block, 10,000 TYX2 110/114 strangles, 58
BELGIUM: BNB Business Confidence adds to Eurozone Woes
Sep-26 13:04
BELGIUM SEP BNB BUSINESS CONFIDENCE -11.8 (FCST -8.6); AUG -5.8
- Belgian business sentiment worsened for the fifth consecutive month in September, sliding six points (vs expected decline of -2.8 points).
- This follows Germany's ifo index this morning, which fell to May 2020 levels.
- At -11.8, the index stands at a November 2020 low on the back of manufacturing, retail and services confidence worsening, driven by a fall in demand alongside employment prospects. Gas supply uncertainty and eurozone inflation expected at 9.7% in September underpin pessimistic growth outlooks.
- Italian and French sentiment is due on Wednesday and are anticipated to add to the worsening euro area outlooks. This adds to the possibility of eurozone Q3 growth coming in weaker than the ECB's September projection of +0.1% q/q.
Source: Belgium National Bank
CANADA: Can-US Yield Differentials Nudge Off Cycle Lows
Sep-26 13:03
- GoCs see a smaller intraday rally than Treasuries, minimising further outperformance to Tsys with 2Y GoCs currently +1.5bps vs Tsys +2bps.
- It does little to change the sharp decline in Can-US yield differentials though, most notably the 2Y now -45bps (lows of circa -50bp shortly after open and lowest since Jun'19) from +5-10bps prior to US CPI strength two weeks ago, adding upside to USDCAD momentum in the process.
- This widening could be maintained in the near-term as aside from today’s 5Y auction, the next idiosyncratic driver is likely GDP for July on Thursday.
