MXN: Peso Reverses Off Earlier Lows

Earnings season continues Tuesday, with the highlights today including:

• 1130BST/0630ET: BNY Mellon, PNC Financial Services
• 1145BST/0645ET: Bank of America
• 1230BST/0730ET: Morgan Stanley
• Pre-market: Charles Schwab, Lockheed Martin

Full schedule including timings, EPS and revenue expectations here: https://roar-assets-auto.rbl.ms/files/54647/MNIUSE...

• Fed Funds implied rates have softened overnight, coming through Asia hours on clear drivers but then being further supported by dovish ECB speak from Knot. Near-term meetings see only modest change with larger declines into 2024 with later 2024 inversion building more notably.
• Cumulative hikes from 5.08% effective: +23.5bp Jul (unch), +26.5bp Sep (unch), 30.5bp to a terminal 5.39% Nov (-1bp).
• Cuts from terminal: 8bp to Dec’23 (from 7bp), 80bp to Jun’24 (from 76bp) and 157bp to Dec’24 (from 148bp).
• Amidst the FOMC blackout on all things mon pol-related, two supervision-related appearances from Fed officials today at 1000ET touching on fair lending and climate change.

Source: Bloomberg

The short end is easily outperforming on the German curve, with 2Y Schatz yields dropping 12.5bp to 3.06%, on course for their biggest daily drop since the ECB decision on May 4th. (Recall at that meeting, Bunds rallied on the ECB decision, with the 25bp hike vs some lingering expectations of 50bp, and a lack of firm commitment to further tightening in the statement.)

• With ECB hike pricing falling sharply and US Fed terminal relatively steady, 2Y German yields have now fallen 14bp vs US counterparts since Jul 13 (yield advantage now 162bp in the US's favor, vs 148bp last week).
• Latest German yields: The 2-Yr yield is down 12.5bps at 3.064%, 5-Yr is down 8.9bps at 2.49%, 10-Yr is down 7.4bps at 2.406%, and 30-Yr is down 5.3bps at 2.453%.