EM LATAM CREDIT: Chile: BCCh Minutes due at 1330BST / 0830ET
CHILE: BCCh Minutes Due At 1330BST / 0830ET
(from our Macro Analyst)
• The BCCh will publish the minutes to its June 17 MPC meeting, when it remained on hold at 5.00% in a unanimous decision. The statement struck a more dovish tone, with the Board signalling scope for a resumption of the easing cycle this quarter. (See the MNI review here: https://mni.marketnews.com/44una8b.)
• The minutes come after the publication of the latest IPoM and so are unlikely to reveal any major surprises. BBVA notes that the BCCh signalled further reductions at upcoming meetings in a more front-loaded approach, even if the final cuts to neutral remain further out.
• Meanwhile, Goldman Sachs expects the minutes to show that the MPC considered the possibility of cutting the policy rate by 25bp but decided against it due to heightened uncertainty around the days of the meeting, particularly on the external front. They will be particularly attentive to any guidance from the MPC on the possibility of resuming the easing cycle in July.
• Those rate cut prospects looked to have increased this week, following soft IMACEC activity data. Looking ahead, the next key data release will be June CPI inflation next week.
• USDCLP edged down by 0.25% to 927 yesterday, keeping the pair close to recent three-month lows. A bear threat remain present, with sights on 914, the Mar 18 low.
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BOE: Key takeaways from today's TSC testimony
Bailey, Breeden, Dhingra and Mann have concluded their testimony to the Treasury Select Committee. Here are the key highlights:
- Breeden's view: We learned that Breeden would have voted for a 25bp cut in May irrespective of global factors and she didn't describe the decision as close. She also explicitly noted that the Minutes stated not all members who voted for a 25bp cut held this view. So she seems to have distanced her view a little from Lombardelli and Breeden and is tilted a little more to the dovish direction. She noted that nothing had changed to challenge the Agents' pay settlements expectations.
- A popular line amongst MPC members now is that the direction of the rate path is downwards but the timing and terminal point are very uncertain. We have seen this line in other recent MPC appearances, and expect it to continue making appearances going forward.
- There was no discussion of June and a cut then appears off the table. There was also no steer to either August or beyond, so knowing that Breeden is a bit more dovish is the key takeaway view here - particularly as she doesn't speak that much and so we can assume that unless something materially evolves in terms of pay settlements that she is likely to be at least as dovish if not more so than Governor Bailey.
- Rate projections: Governor Bailey said that using market paths in the rate projections made little sense and seemed to suggest that eventually market paths probably wouldn't be used at all but that there was quite a bit of work for the BOE staff to do before they could get to this point.
- On scenarios: All of the members agreed that the scenarios and model improvements had improved the MPC's discussions and that they enabled them to quantify effects and run different aspects through the model (Mann used an example of the steepness of the Phillips curve).
- Labour market data: Both Bailey and Breeden pointed to relying more on the HMRC data as well as other labour survey data given LFS issues.
- Surveys to get namechecked by Bailey: Agents and DMP surveys (both are BOE surveys), PMIs, CBI surveys, Lloyds Bank survey.
LOOK AHEAD: Tuesday Data Calendar: Factory Orders, JOLTS Jobs, Fed Speakers
- US Data/Speaker Calendar (prior, estimate)
- 03-Jun 1000 Factory Orders (3.4% rev, -3.0%), ex-Trans (-0.4% rev, 0.2%)
- 03-Jun 1000 Durable Goods Orders (-6.3%, -6.3%), ex-Trans (0.2%, 0.2%)
- 03-Jun 1000 Cap Goods Orders Nondef Ex Air (-1.3%, -1.3%), ship (-0.1%, -0.1%)
- 03-Jun 1000 JOLTS Job Openings (7.192M, 7.100M)
- 03-Jun 1000 JOLTS Job Openings Rate (4.3%, --)
- 03-Jun 1000 JOLTS Quits Level (3.332M, 3.271M), rate (2.1%, --)
- 03-Jun 1000 JOLTS Layoffs Level (1.558M, 1.614M), rate (1.0%, --)
- 03-Jun 1130 US Tsy $60B 6W bill auction
- 03-Jun 1245 Chicago Fed Goolsbee moderated Q&A
- 03-Jun 1300 Fed Gov Cook economic outlook (text, Q&A)
- 03-Jun 1530 Dallas Fed Logan, Fed listens event (text, no Q&A)
CANADA: USDCAD Focus on 1.3643 Support, BOC Rate Decision Wednesday
- USDCAD (+0.15%) is exhibiting a relatively tight range on Tuesday, despite the more constructive tone for the greenback. Although off recent cycle lows, USDCAD posted its lowest daily close since October on Monday, keeping the CAD’s recent resilience in focus as we approach this week’s BOC rate decision.
- We believe that better-than-expected GDP and a pickup in core inflation should tilt the balance toward a hold tomorrow. MNI’s full preview is here: https://mni.marketnews.com/3HqClXT
- Price action backs up the prevailing bear trend for USDCAD evidenced by the 20-day EMA capping the pair’s gains well last week. Sights are on 1.3643 next, the Oct 9 low/Sep high and below here, attention will be on 1.3579, a Fibonacci projection.
- The break-even on an overnight straddle sits at +/- 50 pips, suggesting markets see little risk of a significant breakout over the BOC, and place greater attention on Friday’s US employment data.
- Scotiabank points to CPI expectations remaining elevated, tariff related risks and the fact the markets aren’t pressuring the BOC as bolstering the case for a hold. Goldman Sachs think CAD could benefit from a slightly more hawkish BOC and believe better growth will be a larger positive impulse for the currency in the medium-term.
