CHILE: Morgan Stanley Favour USDCLP Longs from Current Levels
Feb-21 13:05
- The Chilean peso trades around unchanged levels on the week, keeping the sentiment for the local currency on a positive footing. Hawkish developments for the central bank and some renewed China optimism have assisted the latest leg higher for CLP.
- This keeps the focus squarely on the most recent lows at 935.58, of which a breach would signal scope for a move towards 923.43, the Oct 11 low.
- Interestingly, Morgan Stanley is recommending clients to go long USDCLP, as they don’t foresee any further outperformance from the currency. They suggest going long USD/CLP with a 988 target, according to the note, with a stop at 930, stating the currency stands out among EM peers as it’s the lowest-yielding and strongest performing currency this year.
- “As shorts have almost entirely cleaned up on the back of the recent rally in CLP, we have a hard time seeing how CLP can continue to outperform significantly from current levels”, MS said.
- The economic calendar remains quiet, with PPI and production/retail sales data on the docket next week.
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STIR: Repo Reference Rates
Jan-22 13:05
- Secured Overnight Financing Rate (SOFR): 4.29% (+0.00), volume: $2.361T
- Broad General Collateral Rate (BGCR): 4.27% (+0.00), volume: $894B
- Tri-Party General Collateral Rate (TGCR): 4.27% (+0.00), volume: $875B
- (rate, volume levels reflect prior session)
JPY: Rabobank Still Believe USDJPY Can Move Back to 145.00 This Year
Jan-22 12:58
- Rabobank believe there are two key factors for USDJPY making a convincing break below 155.00. Firstly, the signals provided about the pace of tariffs announced by Trump will remain a key influence on the USD, and the Fed’s scope to continue easing.
- A second key factor for the USDJPY outlook according to Rabo will be the relative hawkishness of BoJ Governor Ueda on Friday. They believe his tone will impact expectations regarding the timing of the next policy move. Rabo reiterate their view that USDJPY can move back to 145 on a 12-month view, though this assumes a cautious, but progressive trajectory for BoJ interest rate hikes.
- The bank also notes that while Trump has not singled out Japan with respect to his tariffs threats this week, it is assumed that they are coming. It is commonly considered likely that Japan’s auto sector will be in Trump’s line of fire. Vehicles (including parts and accessories) comprise almost 30% of Japan’s exports to the US, which is bigger than any other sector.
- Rabo caveat this by noting that during Trump’s first presidency a trade deal that gave US farmers more access to the Japanese market allowed the auto sector to avoid extra tariffs.
BONDS: Stabilising Away From Highs, Headline Risk Remains Elevated
Jan-22 12:52
Bonds edge away from pullback lows in early NY trade, with oil ticking away from session highs.
- Little net movement in wider core global FI markers over the last couple of hours, with market moves limited since the rally that came alongside peripheral EGB spread tightening and an equity rally during early European dealing.
- Benchmark yields within 1bp of yesterday’s closing levels across the U.S., German & UK curves.
- EGB spreads remain tighter to Bunds, aided by fresh record highs across some of the major European equity benchmarks, with 10-Year BTP/Bund and OAT/Bund spreads testing key downside levels.
- Headline risk from Davos and the White House noted, with the G10 macro calendar limited for the remainder of the session.
