BRAZIL: DI Swap Rates Decline As Selic Rate Hike Expectations Pared
Jan-30 15:55
- DI swap rates are rallying notably today, with yields down by over 30bp around the 1-2Y segment, as the market pares Selic rate hike expectations, following yesterday’s Copom meeting. At that meeting, the Copom maintained its guidance for another 100bp hike in March, but kept its guidance beyond March open-ended and data dependent. See the MNI review of the meeting, with analyst views here.
- Many analysts see the Selic rate rising to a terminal rate in a 15-15.5% range, below market pricing of above 16% before the announcement.
- Speaking earlier, President Lula said he has 100% confidence in the work of BCB Governor Galipolo and believed he will deliver the conditions to deliver a lower interest rate, as long as policy allows him to do so.
- Meanwhile, USDBRL has pulled back 1.0% after opening sharply higher today, leaving the pair marginally higher on the day. Yesterday’s lows come in just above the 5.84 handle, which remains an important pivotal support area for the pair. Below here, 5.80 and 5.6340 remain significant areas of support.
- Datawise, focus turns to central government budget figures, due at 1730GMT(1230ET), where a BRL 20.5bn surplus is expected in December.
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FOREX: EURUSD Now Down 0.4% as Month End Approaches
Dec-31 15:48
- Worth noting the single currency has been under some pressure as we approach the month/year end WMR fixing window. EURUSD has extended session decline to 0.40%, to a fresh weekly low of 1.0361, while EURGBP is also down 0.3% on the session at 0.8268.
- As noted, 1.0335 remains key for EURUSD, the Nov 22 low and a bear trigger.
- For EURGBP, 0.8223 is the next support, the Dec 19 low, before major support at 0.8203.
US DATA: House Prices Continue To Rise, But High Rates To Maintain Headwinds
Dec-31 15:47
House prices rose a little more strongly than expected in October, though overall gains remained fairly steady from a longer-term perspective.
- The S&P CoreLogic/Shiller 20-city home price index rose by 0.3% M/M (0.2% expected/prior), putting the Y/y measure at 4.22% (4.1% expected, 4.6% prior). The broader FHFA house price index rose by 0.4% M/M as expected, vs 0.7% prior.
- By most measures, housing valuations remain stretched (vs affordability/rates, rental yields), though this has not translated into softer prices. Recent momentum is mixed: on a 3M/3M annualized basis, FHFA prices were up 5.1% in October (highest since April), though S&P 20-city softened to a 17-month low 3.8%. Those are fairly typical figures for pre-pandemic house price trends.
- Prices have remained supported amid historically low turnover in the housing market, exacerbated by high mortgage rates.
- At some point the standoff between buyers and sellers will end, potentially when unemployment increases and/or mortgage rates drop. As it stands, expectations are for housing market activity to pick up in 2025 (existing home sales are seen at a 3-year high with new home sales at a 4-year high), with building permits/starts at the highest in 2 years. That's alongside a very modest softening in the labor market (4.3% unemployment), with long-end rates falling (10Y Treasury yields 4.1%).
- Economic solidity and solid household balance sheets (in part due to elevated house prices) should prevent too severe a deterioration in the housing market next year, though optimism over residential construction activity and home sales looks misplaced given higher rates.
EUROPEAN INFLATION: MNI Eurozone Inflation Preview - December 2024
Dec-31 15:12
Services Momentum To End Year On A Soft Note?
- The holiday season stretches the December Eurozone inflation round over two weeks this year. It also has limited the number of analyst expectations for the data to only a handful, which centre on a higher headline number underpinned by energy base effects, for a current MNI median Eurozone estimate of 2.4-2.5%.
- That would represent a pickup from 2.2% prior, though core inflation is seen steady at 2.7%. MNI will provide updates on any changes to consensus as we emerge from the holidays.
- There are expectations that service inflation could moderate slightly in December vs November, but that would still leave services HICP in the 3.8-3.9% Y/Y area (3.9% Nov).
- Methodological issues are a key theme, both in terms of assessing the apparent softening of seasonally-adjusted sequential services inflation in recent months, and looking ahead, to January's annual category repricings / reweightings.
- While markets fully expect a 25bp cut at the next ECB meeting in January, they currently price only a 10% implied chance of an outsized 50bp cut – well off dovish extremes of around a one in three chance expected towards the end of November.
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