EM LATAM CREDIT: Chile: Election and Central Bank Update
Presidential Front-Runners Losing Support, BCCh Decision Next Week
[MNI Macro]
• USDCLP had a notable close below 945 on Thursday after printing a fresh 3-month low. The peso was buoyed by the strong price action for copper futures, and the technical breach could signal scope for a more forceful move ahead, towards the July lows of 922.67.
• Chilean presidential front-runners Jeannette Jara and José Antonio Kast both suffered significant drops in voting intentions, according to a new poll published less than a month before the first round vote. (BBG)
• Jara saw her backing for the fall to 32.7% from 38.9% in September, according to LatAm Pulse, a survey conducted by AtlasIntel for Bloomberg News and published Friday. Right-wing contender Kast followed with 20.1%, down from 24.7% previously. Both are still seen progressing to the second-round runoff, where Kast is expected to triumph by 47% to 39%.
• September PPI data is due today, the last data point before the BCCh is expected to hold the reference rate steady at 4.75% next Tuesday, as the board continues to closely monitor the evolution of core inflation and its fundamentals.
• While September inflation data confirmed an expected uptick, analysts have pointed out that the core reading was marginally below the central bank’s more hawkish estimates. This should keep a December rate cut firmly on the table, a view echoed by both BCCh economist and trader surveys.
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OAT: Light Widening In OAT/Bund As Unions Announce New Day Of Protests
"FRENCH TRADE UNIONS ANNOUNCE PLANNED NEW DAY OF PROTESTS ON OCT 2 AFTER MEETING WITH PM LECORNU, SAYS THE CFDT UNION" Reuters
That headline was worth ~0.5bps of widening in the 10-year OAT/Bund spread, now at 82bps. It underscores the difficult situation facing new PM Lecornu, much like his predecessors Bayrou and Barnier. More to follow from our political risk team.
JAPAN: Koizumi & Takaichi Play It Safe On Foreign Policy In LDP Debate
Earlier, the five contenders for the presidency of the governing Liberal Democratic Party (LDP) participated in a debate hosted by the Japan National Press Club. Asahi Shimbun detailed the main points of the debate, with key foreign policy comments from the main contenders, Agriculture, Forestry and Fisheries Minister Shinjiro Koizumi and former Minister of State for Economic Security Sanae Takaichi, below.
- Koizumi:
- On US-Japan relations: "Building trust between leaders is extremely important." He indicated a desire to meet Trump at the earliest possible time if elected PM. He said that "Japan-US relations remain the cornerstone of Japan's diplomacy."
- To former Minister of State for Economic Security Takayuki Kobayashi, Koizumi says that 2% of GDP on defence is "not nearly enough."
- Takaichi:
- On foreign relations: "I believe it is extremely important to cooperate and respond [with South Korea] amid the growing closeness between China, Russia, and North Korea. While there is economic competition to some degree, there is significant cultural exchange." Calls for deeper Japan-US-RoK links, as well as Japan-US-Philippines.
- On relations with China: "While there are concerns regarding economic security and national defence, diplomatic strength is crucial. We will approach this with a stance of engaging in candid and repeated dialogue."
- Takaichi demurred on the topic of visiting the controversial Yasukuni shrine. Advocating for the PM visiting during the 2024 LDP election, this time she said the issue should not be politicised in effort to maintain ties w/RoK if she becomes PM.
OUTLOOK: Price Signal Summary - Support In Bunds Remains Exposed
- In the FI space, Bund futures are unchanged and the contract is trading closer to its recent lows. Key support and the bear trigger lies at 127.61, the Sep 3 low. A break of this level would cancel a recent bullish theme and confirm a continuation of the medium-term bear cycle. For bulls, a reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is at 128.60, the 20-day EMA.
- Despite the latest pullback from its recent highs, Gilt futures remain in a bull cycle and a recent rally highlights a stronger corrective phase. Note that the move higher has allowed an oversold trend condition to unwind. Price has breached initial firm resistance at 90.84, the Aug 28 and 29 high. A resumption of gains would open 92.06, the Aug 14 high. Initial support to monitor lies at 90.65 (pierced), the Sep 5 low.
