MEXICO: Weak Q3 GDP Data Reinforce Banxico Rate Cut Expectations
Oct-30 15:14
- The Mexican peso continues to trade on the back foot amid broad dollar strength on Thursday following Federal Reserve Chair Powell’s hawkish remarks last night. Weak Mexico Q3 GDP data added momentum to the move, which as noted has seen USDMXN break out of its recent tight range and rise above resistance around the 50-day EMA.
- The move higher has exposed resistance at 18.6372, the Oct 10 high. Clearance of this hurdle would confirm a clear breach of the 50-day EMA, and signal a possible short-term reversal, exposing 18.8637 initially, the Sep 2 high.
- The 0.3% q/q contraction in the economy in Q3 brought the annual GDP growth rate into negative territory (-0.2% y/y) for the first time since Q3 2021. The weakness was driven by a 2.9% y/y contraction in industrial output, offsetting a modest 1% y/y gain in services and 3.6% y/y expansion in the primary sector.
- Given Banxico’s focus on weak activity through its easing cycle, the data reinforce expectations that it will deliver another 25bp rate cut to 7.25% next week. With the Fed raising some doubt about the prospect for a December rate cut, however, focus next week will remain on the forward guidance and whether the Banxico Board continues to signal further adjustments to the reference rate ahead.
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OPTIONS: Expiries for Oct01 NY cut 1000ET (Source DTCC)
Sep-30 15:12
- EUR/USD: $1.1600-10(E3.3bln), $1.1700-10(E2.2bln), $1.1750-60(E2.1bln), $1.1775(E709mln), $1.1791-05(E1.9bln), $1.1900(E1.3bln), Y147.50($651mln), Y148.65-75($1.0bln)
- USD/JPY: Y146.15($864mln), Y146.40-50($1.7bln)
- EUR/JPY: Y175.00(E802mln)
- EUR/GBP: Gbp0.8780(E599mln)
- AUD/USD: $0.6600-10(A$1.1bln), $0.6700(A$1.6bln)
- USD/CAD: C$1.3900-10($655mln)
- USD/CNY: Cny7.1900($599mln)
US TSYS/SUPPLY: Treasury Ups Bill Sizes To New Records
Sep-30 15:11
Treasury's bill auction sizes for this week were unexpectedly upped: 4-week by $5B to a record $105B, 8-week also by $5B to a joint-record $90B, and 4-month by $2B to a record $67B. See chart below for size history.
- Instead of raising $5B in net cash if they had been unchanged, these will raise $17B on next Tuesday Oct 7's settlement.
- Most expectations we'd seen were for bill sizes to remain relatively steady until later in October so this is coming a little early.
- While it's not clear this was the reasoning, Treasury's TGA cash position had been seen as a little weaker than had been expected in September, and likely to fall short of the $850B targeted for today's end-quarter date (was $786B as of the last Treasury statement date on Sept 26).
SOFR OPTIONS: Dec'25 SOFR Call Buy, Strangle Sale Update
Sep-30 14:55
- +15,000 SFRZ5 96.75 calls, 1.75 ref 96.31
- -12,000 SFRX5 96.12/96.62 strangles, 1.75-2.0
