EM LATAM CREDIT: Republic of Ecuador (ECUA; Caa2/B-neg/CCC+): Pledge for VAT Cut
“Ecuador Dollar Bonds Drop as Candidate Gonzalez Pledges VAT Cut” – BBG
Negative for bond prices
• ECUA 6.9% 2030 bond prices dropped more than 10 points in the days following the Feb.9 first round Presidential election due to fears of Luisa Gonzalez’s policy prescriptions such as the one announced today which is contrary to the existing IMF agreement.
• The USD4bn IMF deal agreed to last year, of which USD1.5bn has already been disbursed, is needed to pay bond amortizations starting January 2026, coupon payments and to help finance fiscal budget deficits.
• Indigenous candidate for President Leonidas Iza won 5% of the vote in the first round and with the top two candidates neck and neck those votes could swing the election. Iza already said he is leaning towards supporting the socialist candidate Gonzalez which raises the probability that some of her campaign promises become policy in the near future.
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US TSY OPTIONS: Large Short-Term Call Buy, Opener
- +45,600 wk2 TY 112.75 calls, 1 ref 109-01 (expire Friday) - new trade, no open interest on option that expires Friday
EURGBP TECHS: Bear Threat Remains Present
- RES 4: 0.8474 High Jan 20 and a key resistance
- RES 3: 0.8421 High Jan 27
- RES 2: 0.8381 20-day EMA
- RES 1: 0.8363 Intraday high
- PRICE: 0.8297 @ 16:46 GMT Feb 3
- SUP 1: 0.8296 Low Feb 3
- SUP 2: 0.8223 Low Dec 19 and a key support
- SUP 3: 0.8203 Low Mar 7 ‘22 and a lowest point of a multi-year range
- SUP 4: 0.8000 Round number support
EURGBP is trading in a volatile manner. The bear cycle that started Jan 20 remains in play and today’s price activity has strengthened - for now - a bearish threat. A resumption of weakness would pave the way for a move towards the first key support at 0.8223, the Dec 19 low. On the upside, the 20-day EMA is seen as a key short-term resistance - at 0.8381. A breach of the EMA would highlight a bullish development.
US: Republican Confidence In Economy Raises Risk Of Blowback For Trump
A new survey from Gallup has found that, “solid majorities of Republicans [voters] believe all five economic factors will improve over the next six months.”
- Gallup: “This includes three-quarters who say the stock market and economic growth will increase over the next six months and six in 10 who say inflation and interest rates will go down. Nearly as many, 57%, expect unemployment to go down, while 20% believe it will go up.”
- Republican optimism suggests there could be a snapback in approval for President Trump if his actions fail to bolster the economy and deliver on promises to lower interest rates and tackle inflation.
Figure 1: Expectations for Key Economic Factors, by Political Party “Over the next six months, do you think that each of the following will go up a lot, go up a little, remain the same, go down a little (or) go down a lot?”
Source: Gallup
