After steep losses in equity markets and most currencies against the dollar yesterday, the risk mood is clearly positive this morning thanks to news out of China (support for developers, easing Aussie coal import ban, etc.) and weaker than expected French inflation.
The USD is broadly weaker while US equity futures rebound slightly after yesterday’s tech-led decline, although crude oil is down significantly for the second consecutive day amid Chinese demand concerns (among other headwinds); metals prices are again mixed. Government bond yields are lower across the board, with the exception of Japan, where yields are being tested by traders speculating an exit from ultra-loose BoJ policy.
The MXN is trading at its strongest level since early-December in line with the dollar-negative mood. The Mexican government sold USD4bn in bonds yesterday, seeing strong demand of around 4.5 times that on offer comprised of USD1.25bn in 5yr and USD2.75bn in 12yr. Local political developments (e.g. AMLO’s offensive on the country’s electoral institute INE and claims against the new Supreme Court president) have seemingly had no major impact on the currency in recent weeks.
The MXN remains supported by solid rate differentials—although rising rates elsewhere while Banxico stands pat eventually risks an underperformance of the peso on the crosses (see EURMXN). Banxico Dep Gov Heath noted yesterday that the bankwill “take note” of now former Dep Gov Esquivel’s dovish concerns while the board remains with a reduced cast of four policymakers—as AMLO fails to name a replacement for Esquivel.
There is little of note today in the region as global markets await US job openings data and the Fed’s meeting minutes but keep a close eye on conflicting messages from the new Brazilian government—which yesterday saw the BRL weaken nearly 2%, or about 1ppt more than the next weakest Latam currency (the CLP). Yesterday, Estadao reported that Brazil's economic team put forward an assessment to Fin Min Haddad of a possible BRL223bn fiscal adjustment—combining higher income projections with expense cuts. This is still in very early stages, however.
—Juan Manuel Herrera
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