LATIN AMERICA: Ecuador: Fiscal Risk and Valuations - Negative
(ECUA; Caa3/B3neg/CCC+)
"Ecuador Bonds Slump as Jefferies Flags Fiscal, Valuation Risks" - Bbg
ECUA 2030s are up 26 points since March 31st and 16 points YTD so meaningful price appreciation even as near term debt sinking fund payments approach so Jefferies reportedly recommending a move to a more neutral stance according to Bloomberg.
The U.S. based dealer reportedly also suggested that the newly reelected Noboa administration was increasing spending amid falling revenue at a time when it might be a window of opportunity given high political capital to implement more fiscal restraint.
ECUA 30s were down a point today to USD85.5 while ECUA 35s fell .66 to USD72.45. We see US equity indexes lower today and Treasury yields higher that are likely also influencing the fall in Ecuador bond prices today.
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EURJPY TECHS: Northbound
- RES 4: 170.47 76.4% retracement of the Jul 11 - Aug 5 2024 bear leg
- RES 3: 167.38 2.0% 10-dma envelope
- RES 2: 166.69 High Oct 31 2024 and a key resistance
- RES 1: 166.29 Intraday high
- PRICE: 166.14 @ 16:33 BST Jun 11
- SUP 1: 163.78 20-day EMA
- SUP 2: 162.95 50-day EMA
- SUP 3: 161.78 Low May 26
- SUP 4: 161.09 Low May 23 and key support
The trend set-up in EURJPY remains bullish and the latest rally reinforces current conditions. The cross has breached key resistance at 165.21, the May 13 high, and traded to a fresh cycle high today. This confirms a resumption of the uptrend and opens 166.69 next, the Oct 31 2024 high and a key resistance. Key short-term support lies at 161.09, the May 23 low, where a break is required to highlight a stronger reversal. First support lies at 163.78, the 20-day EMA.
US INFLATION: Volatile Airfares, Portfolio Mgmt Keep Wide Range Of PCE Ests
There doesn't appear to be much more clarity on PCE estimates after today's CPI report, with a wide range of expectations. CPI looks to have lowered those at least somewhat, but there appears to be a wide range of opinion for PPI inputs into PCE due tomorrow, especially the volatile ones. Recall that eight pre-CPI estimates for core PCE saw a median 0.22%/ average 0.24% M/M for May.
- TD's initial estimate of core PCE is for 0.16% M/M (0.12% headline).
- Goldman now sees 0.18% core PCE (was 0.23% pre-CPI).
- Nomura now looks for 0.348%, down only slightly from their pre-CPI estimate of 0.367%. They note among other PCE-relevant factors: newspapers and magazines and prescription drug prices were strong in CPI and have a larger weight in core PCE, in addition to solid food service inflation which is in the core PCE price index but not CPI (as MNI noted earlier today).
- As Nomura points out, the main area to watch for PCE inputs of PPI - apart from domestic airfares which look to have increased vs a -ve reading in CPI - is portfolio management and investment advice "(which are roughly correlated with stock prices) declined sharply in April, pushing down monthly core PCE inflation by more than 10bp. However, a sharp rebound in stock prices likely pushed up that component by 4.4% m-o-m in May, after it dropped by 6.6% in April."
US STOCKS: Late Equities Roundup: Support Wanes Late
- Support for stocks waned in late Wednesday trade, no obvious headline driver as major indexes traded lower. Treasury futures did extend late session highs of 110-23 (+16.5), however, through initial technical resistance (110-19+/20+ 50-day EMA / Jun 11 High).
- Stocks had quickly pared post-CPI data highs amid cautious optimism after several US/China trade related headlines regarding rare earth supply chains rather than tariffs aired this morning. Currently, the DJIA trades up 54.44 points (0.13%) at 43046.38, S&P E-Minis down 12 points (-0.2%) at 6057.75, Nasdaq down 71.7 points (-0.4%) at 19766.81.
- Energy and Health Care sectors outperforming in late trade, while Materials, Consumer Staples and Communication Services sectors continued to underperform.
- Leading gainers included: GE Vernova +3.11%, Broadcom +2.94%, Palantir Technologies +2.70% and First Solar +2.45% while CVS Health +2.05%, Insulet +1.40%, McKesson +1.32% and UnitedHealth Group +1.26%.
- Laggers included Intel Corp -6.77%, Nucor Corp -6.18%, ON Semiconductor -4.48% and Skyworks Solutions -3.08% while Delta Air Lines -4.90%, United Airlines -4.86% and Lockheed Martin -4.57%. Separately, Old Dominion Freight Line -3.38%, Ross Stores -3.23% and Best Buy Co -3.14%.
