LATAM: SocGen Bullish BRL, Expects LatAm Swap Curves To Steepen
Sep-19 14:48
- SocGen says that the Fed’s easing cycle and soft-landing US economy, along with a resilient LatAm backdrop, should support the region’s FX and rates. They are bullish BRL, neutral to bullish COP and MXN, and neutral to bearish CLP. The main risks to their view are a rapid US economic deceleration, a spike in cross asset volatility due to the US presidential election, and a sharp unwinding of the JPY carry trade.
- In their view, a dovish Fed should improve appetite for LatAm FX given attractive valuations, adverse broad net long USD positioning, and wide real rates differentials versus the US, except Chile. MXN will likely remain volatile until after president-elect Claudia Sheinbaum takes office in early October and the US elections in early November. Idiosyncratic risk in Brazil, Colombia and Chile are more balanced, where Chile’s political cycle might indicate a switch to the centre or centre right of the political spectrum.
- SocGen expects LatAm swap curves to retain a steepening bias. Mexico, Chile and Colombia’s central banks should keep their gradual easing bias, while Brazil will likely stay neutral to hawkish. Meanwhile, high ex-ante real rates, manageable fiscal and debt ratios and controllable local policy risks should offer a further cushion to LatAm rates. The long ends of LatAm swap curves are also likely to drop but be constrained by the range-bound UST 10y yield.
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US TSY FUTURES: Sep'24-Dec'24 Roll Update Gains Momentum
Aug-20 14:47
Tsy quarterly futures roll from Sep'24 to Dec'24 is underway. Percentage complete approximately 3-6% across the curve ahead the "First Notice" date on August 30. Current roll details:
- TUU4/TUZ4 appr 51,900 from -16.75 to -16.12, -16.75 last, 3%
- FVU4/FVZ4 appr 30,300 from -18.0 to -17.5, -17.75 last, 4%
- TYU4/TYZ4 appr 31,600 from -18.5 to -18.0, -18.5 last, 4%
- UXYU4/UXYZ4 appr 4,000 from -10.25 to -10.0, -10.25 last, 3%
- USU4/USZ4 1,500 from -6.0 to -5.75, -6.0 last, 5%
- WNU4/WNZ4 appr 20,200 from -1-02.5 to -1-01.25, -1-02.25 last, 6%
- Reminder, September futures won't expire until next month: 10s, 30s and Ultras on September 19, 2s and 5s on September 23. Sep options expire this Friday.
OPTIONS: CNH Options Activity Muted, But Hesitant Backdrop Persists
Aug-20 14:39
- Mirroring the more muted activity in spot markets, CNH, CNY options trades sits similarly below average for this time of day, with a modest preference for USD/CNY puts over calls in DTCC-tracked trade.
- The risk reversals curve has erased a large part of the early August downleg - despite the persistent weakness in the spot USD index - but still favours steady pressure on USD/CNH into year-end. Options covering the 3m horizon remain in demand, evident in 3m implied holding either size of the 6.00 handle, a level markets have not consistently held above since Q1 2023.
- The front-end of the CNH vol curve remains subdued and comfortably below recent highs - that said, 2w vols are still close to 2 vol points above the YTD average - which may be factoring into policymakers' thinking. Headlines earlier today cited reports that the Chinese FX regulator is gauging the impact of the strong CNY currency on the exporting sector, and how currency fluctuations are impacting hedging costs and the approach to currency risk.
- Both of these factors will have been squeezed by the move in spot and the CNH 3m forward point discount - which hit ~690 points in early August for the first time since at least 2010.
US: Harris Makes Third Trip To Wisconsin Since Launching Campaign
Aug-20 14:39
Vice President Kamala Harris will take a short break from the Democratic National Convention in Chicago today to make a third campaign stop in Wisconsin today. She is scheduled to deliver remarks are scheduled to begin at 21:00 ET 02:00 BST. LIVESTREAM
- Wisconsin is one of the three Rust Belt states that could ultimately determine the presidential election winner. Notably, 2016 Democrat presidential candidate Hillary Clinton failed to visit the state during her campaign, a strategy that was critised when the state voted for Trump as a part of a broader midwestern Republican wave.
- Melissa Baldauff, a Milwaukee-based Democratic political strategist, said: "This is her third visit to Wisconsin since announcing her campaign, and seventh total this year. So there's a real, real clear commitment to Wisconsin."
- The event comes as Harris' economic agenda starts to take shape. Harris has thrown her weight behind several populist plans to address rising prices, including a proposal to boost first-time homebuyers and a pledge to crack down on corporate price gouging.
- Harris also appears to have endorsed much of President Biden's FY2025 budget to generate revenue, including a plan to raise the corporation tax rate to 28% and hike taxes on billionaires.
- FT notes: “Her tax plan for businesses contrasts sharply with [Trump’s], who is proposing slashing the corporate tax rate to 15 per cent. Harris’s plan would make the US’s corporate tax rate higher than the UK’s, at 25 per cent, and one of the highest among advanced economies.”
