MEXICO: Analyst Views On Bi-Weekly CPI Inflation
Apr-24 17:15
- Barclays notes that inflation increased significantly more than expected in H1 April, despite the considerable negative contribution of electricity tariffs. In their view, FX volatility boosted non-food core items. However, they believe that recent USDMXN dynamics should mitigate these pressures and Banxico should continue to ease.
- Itaú says that seasonal patterns affected inflation more than expected, reinforcing their view that tradable goods will return to the pre-pandemic trend and pressure core inflation in the coming months. Additionally, the inflation outlook remains challenging, with somewhat sticky service inflation and volatile climate conditions, including droughts in parts of the country, posing risks. They forecast inflation to end 2025 at 3.9%, but considering the weak economic activity and forward guidance, maintain their call for a 50bp rate cut in May.
- Scotiabank believes that inflationary risks remain tilted to the upside, highlighting the potential impact of tariff measures between Mexico and the US, as well as possible FX pass-through. Additionally, there could be a significant rebound in the non-core component due to climatic events in the coming months. Despite this, Banxico is still expected to cut by 50bp in May due to projections of slower economic growth, with surveys indicating a possible convergence towards zero growth or even a recession.
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ECB: Villeroy Maintains Dovish Tone, Questions Fiscal Inflation Impulse
Mar-25 17:10
Typically dovish comments from Villeroy in an interview with Germany’s Faz. The language around the inflation impact from tariffs is similar to comments from last week but he goes into a little more detail on potential fiscal impacts here:
- "*ECB'S VILLEROY: EASING CYCLE NEITHER FINISHED NOR AUTOMATIC
- *VILLEROY: ECB STILL HAS SCOPE TO EASE POLICY
- *VILLEROY: MARKET VIEW OF 2% RATE IN SUMMER IS POSSIBLE SCENARIO
- *VILLEROY: PACE AND EXTENT OF ECB EASING REMAIN OPEN" - bbg
- “*VILLEROY: GERMANY'S FISCAL PLAN DOESN'T NECESSARILY FUEL PRICES
- *VILLEROY: NO SIGNIFICANT INFLATION EFFECT IN EU FROM TARIFFS” - bbg
- “The German program is a historical game-changer for Germany and for Europe. However, in order for the program to be a complete success, the supply, the capacity to produce, must increase as much as the funding.”
BUNDS: Markets Wary Of Non-Monetary Policy Driven Bund Downside
Mar-25 17:10
- Despite the today’s net downtick, Bunds continue to print well above their lows seen during the aftermath of the German fiscal announcement on March 4. RXM5 is currently ~160 ticks higher, whilst in cash space, the 10Y currently trades around the 2.8% handle vs highs of almost 2.94% although it still compares with sub 2.5% prior to the announcement.
- Markets appear wary of further downside for the contract: The difference between a June expiry Bund future 25 delta put and the respective call contract continues to print in positive territory, having pared around half of its initial spike following the March 4 announcement. This mirrors our Europe Pi published yesterday, which sees Bund positioning as very short.
- Tellingly, this is counter to the volatility skew in 3m Euribor futures, which has seen no material shift since early March, with 25 delta puts for the Jun’25 continuing to be modestly more expensive than respective calls. This would suggest that Bund wariness appears not to be driven by European STIR, or, said differently, market pricing appears expensive for hedging against further ASW tightening.
- From a fiscal risk angle, tomorrow will see a constitutional court judgement on the so-called solidarity surcharge in Germany - if the case is upheld, it would directionally favour short Bund positioning vs Swaps. See an overview of the case and potential implications here.
- However, leaving aside this singular event, from a fundamental perspective, already short positioning, the lack of an immediate ramp up in issuance and lingering tariff threats present some clear risks against further ASW tightening in the near term.
US TSYS/SUPPLY: Review: Treasury 2Y Note Auction
Mar-25 17:03
- Tsy futures remain bid (TYM5 +8 at 110-25.5) after the latest $69B 2Y note auction (91282CMV0) comes out in-line: 3.984% high yield vs. 3.985% WI; 2.66x bid-to-cover vs. 2.56x prior.
- Peripheral stats has Indirect take-up receding to 75.77% from 85.49% prior, directs climb to 13.58% vs. 7.64% prior, primary dealer take-up 10.65% vs. 6.87% prior.
- The next 2Y auction is tentatively scheduled for April 22.
