BRAZIL: BRL Outperforming, At Fresh Cycle Highs
- In the aftermath of former President Bolsonaro’s conviction, the Brazilian real is outperforming, rallying by a further 0.65% against the dollar today to a fresh cycle high. At the same time, DI swap rates have edged higher, but continue to trade in a relatively tight range, while the IBOVESPA is marginally lower on the session (-0.3%).
- The resilience of BRL comes ahead of next week’s Copom meeting, when the committee is widely expected to maintain its hawkish stance amid persistent core inflation pressures, thus maintaining the attractiveness of carry strategies.
- Meanwhile, sentiment may also be supported by the possibility that Bolsonaro will now throw his support behind Sao Paolo Governor Tarcisio de Freitas as the candidate to carry the right’s flag in next year's presidential election (although he may yet prefer to support a family member in the election run instead).
- On the other hand, the prospect of further sanctions or tariffs from the US in response to the conviction remain a risk for BRL near-term. Yesterday, Secretary of State Marco Rubio denounced the trial and vowed to respond accordingly.
- Overall, however, a bearish tone USDBRL remains intact, with today’s losses narrowing the gap to next support at 5.3153, the 61.8% retracement of the Jul 28 ‘23 - Dec 18 ‘24 bull cycle. CIBC say that they maintain a preference for buying any USD/BRL spikes into the end of the quarter and do not rule out a brief test of the 5.20 level.
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JGBS: Rakuten Bank Stepping Back From JGB Buying
From a little earlier this afternoon "Rakuten Bank to Refrain From JGB Buying as More Rate Hikes Seen" Bloomberg
From the story: "Rakuten Bank Ltd. will likely hold back from actively buying Japanese government bonds until the central bank raises interest rates again, in the latest sign that an uncertain policy outlook is weighing on investor sentiment."
"The lender, a unit of Japan’s e-commerce giant Rakuten Group Inc., has seen its total deposits almost triple from five years ago to ¥11.7 trillion ($79 billion) at the end of June, as its online banking services attract more customers. While the deposits are dwarfed by those of Japan’s biggest lenders, Rakuten Bank’s fast-growing cash pool is pushing it to look for investments".
Comes against a backdrop of ongoing concerns around JGB liquidity and structural demand. Yesterday, the 10-year JGB went untraded for the first time in two years.
FED: US TSY 17W BILL AUCTION: HIGH 4.050%(ALLOT 41.13%)
- US TSY 17W BILL AUCTION: HIGH 4.050%(ALLOT 41.13%)
- US TSY 17W BILL AUCTION: DEALERS TAKE 28.74% OF COMPETITIVES
- US TSY 17W BILL AUCTION: DIRECTS TAKE 5.29% OF COMPETITIVES
- US TSY 17W BILL AUCTION: INDIRECTS TAKE 65.98% OF COMPETITIVES
- US TSY 17W BILL AUCTION: BID/CVR 3.50
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Aug15 $1.1590-10(E1.3bln); Aug18 $1.1560(E1.1bln); Aug19 $1.1620-25(E1.7bln)
- USD/CAD: Aug15 C$1.3910($995mln)
- USD/CNY: Aug15 Cny7.5000($1.7bln)
