BRAZIL: FinMin Haddad Says Tariffs Unsustainable, Local Assets Pare Losses
Jul-10 14:05
- Local assets have pared their earlier losses amid more optimistic headlines regarding a potential intervention by former President Bolsonaro and constructive comments from Finance Minister Haddad.
- After soaring by over 30bp on the open, DI swap rates have fallen back, with yields now 15bp higher on the day, while local equities are off their session lows. Meanwhile, USDBRL is now 0.4% lower on the session, marking an impressive 1.3% reversal from session highs in early trade, which saw the pair briefly pierce the key 5.60 pivot point.
- Earlier, CNN Brasil reported the former President Bolsonaro may ask President Trump to reverse the tariff measure. He is said to be considering direct negotiation with the White House to prevent the public from believing that the tariff hike is the result of his son Eduardo Bolsonaro's efforts in the US against the Brazilian Supreme Court.
- Meanwhile, Finance Minister Haddad has said that he doesn’t believe the tariffs will last and that there is no reason not to resume talks based on economic terms that are beneficial to both sides.
- With the Brazilian government still considering its response, President Lula may make a TV address this evening, according to O Globo, although no decision has yet been made.
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SOFR OPTIONS: Morning Update: Carry-Over Midcurve Put Tree
Jun-10 14:02
- 1,700 0QM5/0QN5 96.75 call spds
- +2,500 SFRZ5 95.62/96.00 1.25 over 0QZ5 96.12/96.50 put spds
- Update, +18,000 0QV5 95.87/96.12/96.37 put trees, 4.25-4.5 ref 96.64 to -.62 (adds to appr +25k yesterday from 3.5-4.25)
ECB: Excess Liquidity Ticked Up Last Week But Downtrend Intact
Jun-10 13:59
Eurozone excess liquidity increased by E0.295bln during the w/c June 2, keeping the measure at E2.703trn as of last Friday, June 6. This minor increase shouldn't raise questions around the longer-term of an orderly downtrend. Excess liquidity has declined by 43% from the series high of E4.748trn in November 2022.
- The long-term decline since the peak has mostly been driven by a roll-off of the ECB's TLTROs (with the TLTRO III programme starting in 2019 with three-year maturities and with the final maturity in Dec 2024) as well as of the ECB's Monetary Policy Positions (MPPs), which are standing at a current E4.014tln combined.
- Amongst the MPPs, the ECB envisages a further average monthly roll-off of around E13.6bln of the PEPP through Dec-26 and of around E28.4bln of the APP through Jul-26 (respective f'cast horizons).
- During last Thursday's ECB press conference, President Lagarde was asked if the Governing Council would have to put on hold quantitative tightening if it were to decide for a pause in interest rate cuts - to which Lagarde answered "I think the risk of inconsistency of QT associated with interest rate policy, which is our main tool, is probably less critical in the event [...] of a pause" - meaning that the orderly excess liquidity reduction is set to continue in the Eurozone also if the ECB were to shift into some "wait-and-see" mode on interest rates.
EURGBP TECHS: Breaches Resistance
Jun-10 13:57
- RES 4: 0.8557 High Apr 28
- RES 3: 0.8541 High May 2
- RES 2: 0.8502 38.2% retracement of the Apr 11 - May 29 downleg
- RES 1: 0.8469 Intraday high
- PRICE: 0.8456 @ 14:56 BST Jun 10
- SUP 1: 0.8407/8356 Low Jun 4 / Low May 29 and the bear trigger
- SUP 2: 0.8327 1.382 proj of the Apr 11 - 16 - 21 price swing
- SUP 3: 0.8316 Low Mar 28 and a key support
- SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing
EURGBP has traded higher today. The recovery has resulted in a break of resistance at 0.8440, the 50-day EMA. This highlights a potentially stronger reversal and exposes 0.8541, the May 2 high. For bears, support to watch lies at 0.8356, the May 29 low. Clearance of this level would resume the downtrend and open 0.8316, the Mar 28 low and a key support. Initial support has been defined at 0.8407, the Jun 4 low.
