MEXICO: BBVA: Monetary Policy Will Remain Very Tight In The Foreseeable Future
Jun-23 18:05
- The decision was widely expected and there were no surprises in either the statement's wording, which continues to strike a hawkish tone, or the changes to the inflation forecasts, which were only moderately adjusted to the downside. It reinforces BBVA’s view that the tightening cycle has concluded.
- Looking ahead, Banxico signalled that it will keep the policy rate unchanged for a while. The next move is not around the corner, but Banxico will shift to rate cuts after a long pause. The main question going forward is whether Banxico will keep rates steady throughout the remainder of 2023, allowing the real ex-ante rate to increase further (beyond 7.0-7.5%) given that inflation will not yet fall back to the target range, or will be forward-looking and start to cut the nominal policy rate in 4Q.
- With either option, monetary policy will remain very tight in the foreseeable future. Yet, with falling inflation, well-anchored expectations, and a strong peso, BBVA expect Banxico to start a rate cut cycle in 4Q23 to avoid an additional increase in the already very high ex-ante real rate, which is set to hover around 7.0% in the next few months.
- Given that the peso strengthening, along with a very high monetary policy rate, has brought monetary conditions to restrictive territory, in a backdrop of falling inflation and expectations, after extending the pause during 2Q and 3Q, Banxico should start a rate cut cycle in 4Q to avoid a further tightening of the monetary policy stance, even if the Fed is still in a pause. A signal is not likely in the short term, but BBVA continue to expect that Banxico will start to cut rates as soon as in November.
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EURUSD TECHS: Bearish Outlook
May-24 18:03
- RES 4: 1.1127 1.00 projection of the Mar 15 - 23 - 24 price swing
- RES 3: 1.1054/95 High May 8 / High Apr 26 and key resistance
- RES 2: 1.1007 High May 10
- RES 1: 1.0874/0887 50- and 20-day EMA values
- PRICE: 1.0759 @ 15:57 BST May 24
- SUP 1: 1.0748 Low May 24
- SUP 2: 1.0737 61.8% retracement of the Mar 15 - Apr 26 bull run
- SUP 3: 1.0713 Low Mar 24
- SUP 4: 1.0653 76.4% retracement of the Mar 15 - Apr 26 bull run
EURUSD traded lower Wednesday and showed through last week’s 1.0760 low. The outlook remains bearish. The 50-day EMA, at 1.0874, has recently been breached and price remains below the average. This reinforces bearish conditions and signals scope for a continuation lower towards 1.0737 next, a Fibonacci retracement. Clearance of this level would open 1.0713, the Mar 24 low. A firm resistance is seen at 1.0887, the 20-day EMA.
US TSYS: Post-May FOMC Minutes React
May-24 18:03
- Fast two-way trade sees futures holding mildly weaker after the May FOMC minutes release showed officials were split on support of more hikes.
- Currently, 10s holding off session lows at 113-12.5 (-7). Curves mildly flatter, 2s10 -.593 at -64.070.
US: Dem Leader Jeffries: House Republicans Are Intent On Crashing The Economy
May-24 17:58
Max Cohen at Punchbowl News reports comments from House Minority Leader Hakeem Jeffries (D-NY) providing a pessimistic assessment of debt limit talks.
- Jeffries: “It’s increasingly clear to me that House Republicans are intent on crashing the economy and defaulting on our debt. That’s wrong. It will hurt everyday Americans in the brinksmanship.”
- With the Senate in recess and the White House negotiators declining to talk substantively to the press, much of the Democrat messaging on the debt ceiling has fallen Jeffries.
- Jeffries' comments reflect a more pessimistic tone on the Hill as negotiators continue discussions at the White House.
- Jeffries told reporters yesterday that Democrats are willing to accept a spending freeze as part of a deal but unwilling to consider the spending cuts restated as a condition by House Speaker Kevin McCarthy (R-CA) today.
- Jefferies: “As part of the effort to find common ground, we’re willing to consider freezing spending. That is not an extreme proposal. That is a reasonable proposal.”
- White House Press Secretary Karine Jean-Pierre is scheduled to brief the press in around 15 mins: https://www.whitehouse.gov/live/
