BRAZIL: BRL May Be Negatively Impacted By Poorer Risk Sentiment AT Open
Jun-23 11:56
- The greenback is benefitting from renewed global growth concerns on Friday, prompted by poorer flash PMI data across Europe that have dented risk sentiment. As such, higher beta currencies have struggled such as the antipodeans as well as the expected weakness for the Euro.
- The Mexican peso is also trading on the back foot; however, losses have remained contained to just 0.4% so far. BRL would be expected to join this negative sentiment at the open, especially amid a weaker commodity complex, potentially testing the most recent upward momentum for the Brazilian real.
- Concerns regarding growth are sure to strengthen the administration’s desire to commence the easing cycle in Brazil. On Thursday, finance minister Haddad displayed his displeasure with the most recent BCB statement citing the lack of explicit signalling of cuts as ‘very bad’. For reference, the front-end of the DI curve is pricing in a Selic drop of ~24bps in August. There are no tier-one data releases in Brazil on Friday, with market participants keeping an eye on the preliminary text on a tax reform report presented by bill’s rapporteur Aguinaldo Ribeiro.
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OPTIONS: Larger FX Option Pipeline
May-24 11:53
- EUR/USD: May26 $1.0785-00(E2.5bln), $1.0865-80(E1.7bln), $1.0900(E1.4bln)
- USD/CNY: May25 Cny7.0500($1.1bln), Cny7.0250($1.6bln)
STIR: SOFR Futures Update
May-24 11:47
SOFR futures are trading weaker in the short end as projected rate cuts later in the year remain soft.
- Front month Jun'24 SOFR futures are currently trading -0.0175 at 94.7675 well after 3M SOFR settled +0.02538 to 5.19155 (+.02808/wk). Reds through Golds (SFRM4-SFRMH8) +0.015-0.025.
- Fed funds implied 25bp hike at the next FOMC on June 14 climbs to 8bp, while projected rate cuts later in the year remain well off last week's lows.
- At the moment, September cumulative is +4bp (-20.8bp last Tuesday) at 5.13%, November cumulative -14.4bp (-43.7bp last Tuesday) at 4.946%, Dec'23 cumulative -34.8bp (-69.0bp last Tuesday) at 4.742%, while Jan'24 cumulative is -54.7bp (-93.3bp Tuesday) at 4.543%.
- Fed Terminal has climbed to 5.22% in Aug'23 this morning.
NZD: Demand for Downside Protection Sees Bumper NZD Options Volumes
May-24 11:38
- No surprise to see NZD/USD options volumes well ahead of average following the RBNZ rate decision overnight - with a flurry of options trades crossing in late Asia-Pac hours/early Europe to prop activity.
- Downside NZD protection has been the focus after the pullback in spot, with over $4 in put notional trading for every $1 in calls. $0.6000 put strikes have seen particular interest, with $460mln wagered against that level.
- The front-end of the NZD implied vol curve has stabilised at relatively low levels since the RBNZ decision - early May saw the lowest print for 1m implied since early 2022 - largely due to the persistent roll lower in realized vols off the late 2022 peak.
- This leaves the NZDUSD smile curve skewed in favour of OTM puts - but retaining the parallel shift lower off elevated levels posted earlier this year. An ATM 1m straddle now breaks even on a swing of approx 140 pips at present, down from approx 170 pips two months ago.
