BRAZIL: DI Swaps Underperform As Government Prepares Food Price Measures
Mar-06 18:34
- Brazilian DI swap rates have underperformed slightly today, with yields in the belly and long-end up by around 10bp in a bear-steepening move, as agriculture minister Favaro has said that the government will announce measures to contain food price pressures.
- Government officials held meetings today to discuss the matter as rising prices continue to weigh on President Lula’s popularity. Concerns about the government’s commitment to fiscal discipline continue to weigh on sentiment.
- In Mexico, while front-end TIIE-F swap rates have remained well contained, longer-end yields have risen by 5-8bp as tariff developments continue to dominate attention. Recent headlines from US Commerce Secretary Lutnick and then President Trump provided a more optimistic narrative, as all goods tied to the USMCA were granted another month extension to April 02.
- TIIE-F swap rates remain lower over the last week, however, especially at the front-end, as recent weak activity data keep the door open to another 50bp Banxico rate cut later this month. Feb CPI data tomorrow are likely to support this view, with core inflation set to stay stable and headline inflation remaining inside the target range.
- Elsewhere, Chile camara swap rates have risen by 4-6bp today, following robust nominal wage data and ahead of Feb CPI tomorrow, which is set to support the case for an extended BCCh rate pause.
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GBPUSD TECHS: Resistance Remains Intact
Feb-04 18:30
- RES 4: 1.2610 38.2% retracement of the Sep 26 ‘24 - Jan 13 swing
- RES 3: 1.2576 High Jan 7
- RES 2: 1.2504/23 50-day EMA / High Jan 27 and key resistance
- RES 1: 1.2491 High Feb 4
- PRICE: 1.2490 @ 16:40 GMT Feb 4
- SUP 1: 1.2249 Low Jan 3
- SUP 2: 1.2161 Low Jan 17 / 20
- SUP 3: 1.2100 Low Jan 10 and the bear trigger
- SUP 4: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
Despite a recovery from Monday’s low, the latest pullback in GBPUSD highlights a bearish threat. The move down signals the end of the Jan 13 - 27 correction and note too that resistance at 1.2504, the 50-day EMA, remains intact. Furthermore, MA studies are in a bear-mode position highlighting a dominant downtrend. A continuation lower would open 1.2100, the Jan 13 low and bear trigger. A clear break of the 50-day EMA would alter the picture.
STIR: Midday SOFR Option Roundup
Feb-04 18:25
- +10,000 SFRJ5 95.75 puts 2.0 ref 95.89
- +5,000 SFRU5 97.00/97.50 call spds, 2.0 vs. 95.99/0.06%
- +10,000 0QU5 96.50/97.00 call spd vs 3QU5 96.37/96.87 call spd spd, 0.5 net
- +5,000 SFRZ5 95.50 puts, 9.5 vs. 96.06/0.24%
- -5,000 SFRZ5 95.37/96.62 strangle, 23.0 96.07
- -10,000 SFRJ5 95.87/96.12/96.37 call flys, 4.0-3.75 ref 95.89
- -15,000 0QK5 95.25/95.50 put spds, 2.5 ref 96.09
- +5,000 SFRJ5 95.75 puts 2 ref 95.885
EUROPEAN FISCAL: Improved France Central Govt Deficit Tracking On Lower Spending
Feb-04 18:18
- Today’s data for the central government cash balance saw a budget deficit of E156.3bn in 2024 or 5.4% GDP, an improvement from the E173.3bn or 6.1% GDP in 2023 on the same cash and central government basis.
- Whilst it’s not directly compatible to national accounts basis figures used in the budget, it points to a greater directional improvement compared to the 5.4% GDP forecast for the central and state government deficit in 2024 in the October draft budgetary plan after the realized 5.6% GDP in 2023.
- This was part of the draft plan that saw a general government (i.e. incl local governments and social security) deficit of 6.1% GDP in 2024 after 5.5% GDP in 2023.
- This draft budgetary plan had pencilled in a general government deficit of 5.0% GDP in 2025 although this has since of course been lifted to a target of 5.4% GDP by the new Bayrou government having been forced through parliament without a vote on Monday. [See our political risk team’s post at 1653GMT on the fallout from this approach: Gov't To Survive 5 Feb Votes; Censure Motion Next Week Greater Threat].
- Back to the details in today’s central government cash data, the bulk of the improvement on the year came from total expenditure falling to E511.1bln vs E522.7bln in 2023.
- Total revenues also modestly increased to E357.2bn in 2024 vs E354.5bn in 2023, helped by “other tax revenues” at E67.5bn vs E65.5bn in 2023.
- The press release notes the increase in other tax revenues was "mainly due to the growth in other domestic taxes [+E2.0bln] and the solidarity levy [+E0.8bln]" though these were partially offset by a "slight decrease in net IR revenues [-E0.6bln] and the state share of net TICPE (internal consumption tax on energy products) [-E0.8bln]".
- Non-tax revenues fell to E23.2bn vs E25.1bn in 2023, mainly because of an EU RRF payment.
- Finally, special accounts recorded a deficit of E2.35bn vs the E5.1bn in 2023.
