It’s a quiet start to the week on limited developments with Japanese markets closed, showing a generalised risk-off feeling to trading that has nearly all currencies weaker against the USD (ex the JPY, for once), losses in US equity futures and cash European bourses, rates on the backfoot, and a broad selloff in commodities.
Sharp losses in Asian stocks follow apparent selling by domestic mutual funds as authorities reportedly lifted a ban on net selling; the CSI 300 fell 1.3% and HSI dropped 1.9%. US equity futures are down 0.3%, where a ~8.5% pre-market drop in Boeing is the highlight on another plane failure over the weekend. Oil is down about 1.2%, while copper and iron ore are 0.2–0.4% weaker.
The European morning began with little changed USTs and gilts and EGBs opening weaker, bear steepening, in a catch-up to a selloff in the US on Friday and what seemed like some selling pressure ahead of another expected flood of EUR issuance; we also have the US selling 3s, 10s, and 30s from Tuesday to Thursday. Shortly before writing, rates markets have caught a bid that leaves USTs bull flattening and little changed to slightly weaker European rates markets. The issuance slate should be the main driver of global market action during the first half of the week where we get little in terms of key data in the G10, but some central bank speakers, ahead of US CPI on Thursday.
The MXN is flat around 16.85–90, outperforming the dollar-positive mood as the peso holds its Friday rally on the broad USD-negative shift. AMLO said yesterday that, by the end of his term, he will present constitutional reforms that mandate minimum wage increases no lower than inflation to support workers’ purchasing powers. On Friday, the Citibanamex survey showed no change in end-2024 Banxico rate expectations, remaining at 9.25% for the median, with economists expecting a first 25bps reduction in March.
It’s all eyes on Chile today, where we get the release of Dec CPI at 6ET, and Dec international trade and the BCCh’s traders’ survey results at 6.30ET. Chile’s prices data is first out the gate in the region, ahead of Mexican and Colombian figures on Tuesday and Brazil on Thursday, when Peru’s central bank also decides on policy and is expected to deliver a fifth straight 25bps rate cut to 6.50%. With 12-month inflation expectations at 2.83% in the latest BCRP economists and analysts survey (out last week), falling below 3% and into the target range for the first time since June 2021, officials should have no hesitation in lowering the reference rate this week.
Us and the Bloomberg economist median expects a small 0.1% m/m decline in headline Chilean prices. This would translate into a 4.4% y/y rise (shy of the median’s 4.5%) from the 4.8% recorded in November. Across the main categories in the basket, we think food and non-alcoholic beverages, and recreation and culture will act as the biggest drag on prices for the month while housing and utilities, and transportation (seasonal increase in intercity fares) pull in the other direction. In the case of the ex volatiles basket we see a solid decline from 6.0% to 5.7% y/y, with no price changes m/m. As of Friday, Chilean traders were pricing in 75bps cuts in each of the February and March meetings, which should be reflected in today’s results of the BCCh traders’ survey.
—Juan Manuel Herrera
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