Global markets are laser focused on the ECB’s too-close-to-call decision at 8.15ET where it’s anyone’s guess what Lagarde and co will choose to do—with odds just slightly favouring a hike. Aside from the ECB, G10 markets await US retail sales, PPI, and jobless claims at 8.30ET sandwiched between the ECB’s statement and Lagarde’s press conference (8.45ET).
Asia hours brought a broadly weaker dollar and firmer USTs to European trading that has decided to unwind the bulk of these moves as US yields are now about 0.5/1.0bps higher across the curve, while the USD that was on the backfoot in Asia is now little changed; the MXN is flat. SPX futures are up small while crude oil is clawing back yesterday’s drop thanks to a 0.8% gain on the day matched by iron ore, but doubling copper’s +0.4%.
The busy calendar in the G10 contrasts to a mostly bare Latam schedule today that only presents Brazilian services volumes at 8ET and then a very long wait until the BCRP’s rate announcement at 19ET. The team previewed the bank’s decision in yesterday’s Latam Daily (see here), marginally favouring a rate hold that contrasts with the Bloomberg median’s 25bps reduction to 7.50% (8 for a 25bps cut, 3 for hold, and a brave 50bps cut forecast). By the end of the day, the policy rate spread between the BCRP and the ECB may be unchanged or it could be as much as 50bps apart (75bps for the single outlier).
It’s worth noting that there are only three weeks between today’s and October’s BCRP decisions. The bank may be comfortable delaying the start of rate cuts by less than a month if that gives them a better sense of inflationary pressures with another CPI print due (and tomorrow’s GDP data) and better projections on the possible strength of El Niño—and what that could mean for GDP and prices, especially food. But, the short time in between meetings could also see them choose to hike today and skip October’s.
—Juan Manuel Herrera
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