MEXICO: Banxico Interest Rate Decision, Jan Consumer Confidence
Feb-06 11:37
- Banxico is expected to cut the key rate by 50bp to 9.50% today (1900GMT/1400ET), in line with prior dovish rhetoric, which indicated that larger downward adjustments could be considered in some meetings. Supporting a bolder cut is the continued progress lower for headline inflation, weaker-than-expected domestic GDP data and the loss of one of the most hawkish voices of the committee. Last night, the Senate approved Jose Gabriel Cuadra Garcia’s appointment to Banxico’s board, replacing Irene Espinosa, potentially giving the central bank a more dovish tilt. See the MNI preview with analyst views here.
- Amid the heightened tariff uncertainty and associated MXN sensitivity, analysts had been split over the potential Banxico response. But the latest tariff delay leaves a bolder rate cut as the most likely move at this juncture. On the latter, Deputy Economy Minister for Trade Luis Rosendo Gutierrez said yesterday that Mexican and US officials had met and discussed the beginning of public consultations ahead of the USMCA review.
- Separately, January consumer confidence figures are also due today, at 1200GMT(0700ET). Analysts see confidence edging down to 46.8, from 47.1 in December.
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EUROPEAN INFLATION: Swiss CPI Dragged Down By Transport Services, Overall Soft
Jan-07 11:36
Looking at the details of the Swiss December inflation data shows a solid slowdown in the services CPI contribution (-0.126pp vs November) which, however, was almost exclusively driven by transport services; core inflation almost rounded down to 0.6%, making up for an overall soft release.
- Transport service inflation declined sharply to -1.4% Y/Y (3.3% prior), its lowest value since June 2021. Its contribution to headline decreased by 0.120pp vs November. Higher car fuel inflation could not outweigh that in the overall transport category.
- This means that the mid-term trend of lower services ex-rents contributions to headline remains intact - see the dark blue bars in the chart below.
- Further details see table.
- Also note that the consensus estimate was upwardly skewed (0.6% median but a number of analysts expecting a higher headline figure), so even though headline came in in line with consensus, it remained below the mean estimate (0.63% vs 0.65% mean est).
- The Swiss Franc saw some weakness on the back of the release, most notable in EURCHF, which is approaching the Nov 04 high of 0.9447 in a move further underpinned by strength for the single currency today. A continuation of the EURCHF rally would place the technical focus on a cluster of September highs around the 0.95 handle.
BONDS: Core global FI Remains Under Pressure, Gilts Lead Sell Off
Jan-07 11:34
Swelling € & $ IG supply continues to weigh on bonds, alongside an uptick in crude oil futures.
- Elsewhere, a bid in European equities may be applying further pressure.
- Global core FI curves bear/twist steepen on the day.
- Gilts continue to lead the sell off, with 30-Year yields trading to fresh multi-decade highs and 10s threatening a clean break of their December high (technicals for 10s and 30s detailed in earlier posts).
- Gilts also falling afoul of fiscal/issuance risks, adding to broader global FI pressure, with the move higher in yields continuing to erode already narrow fiscal headroom in the UK.
- Solid reception of the latest 30-Year gilt auction did little to counter the sell off.
- Bears fail to retest yesterday’s lows in TY & Bund futures as of yet.
EQUITIES: EU Bank Risk Reversal
Jan-07 11:33
SX7E (17th Jan) 143/151RR, bought the call for 0.25 in 10k.
