CHILE: Scotiabank Highlights Increasing Debt Sensitivity To FX Movements
- Scotiabank estimates that a 10% appreciation (depreciation) of the CLP reduces (increases) the gross public debt to GDP ratio by 1.12 ppts. Given this, they estimate that around 1/4 of the 6ppts increase in public debt during the Boric administration is explained by a higher FX rate.
- Public debt rose from 15% to 42% of GDP in the last decade, with a growing proportion denominated in USD. The evolution of public debt is one of the main concerns not only for the government, but also for multilateral organisations and credit rating agencies.
- As part of the policies implemented to support households in the pandemic, close to $50bn was withdrawn from pension funds, reducing the depth of the local capital market and contributing to the increase in foreign currency debt issuance by the government. As a result, debt exposure to FX movements increased.
- Considering the current public debt issuance schedule for 2025, the share of FX debt would continue to increase. Of $5bn in foreign currency debt expected to be issued this year, $3.4bn has already been issued.
- Scotia says that if USDCLP rises above 1,200, public debt would reach the prudent threshold of 45% of GDP this year (vs. 42.1% baseline at USDCLP975). Similarly, if USDCLP falls towards 800, the debt to GDP ratio would return to below 40% of GDP.
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US STOCKS: Late Equities Roundup: Narrowly Mixed Ahead Midweek Inflation Data
- Stocks trade mixed late Tuesday, inside narrow ranges as markets await the release of key CPI and PPI inflation data on Wednesday and Thursday respectively. Currently, the DJIA trades up 58.19 points (0.13%) at 44529.93, S&P E-Minis down 0.75 points (-0.01%) at 6088, Nasdaq down 57.7 points (-0.3%) at 19656.57.
- Consumer Discretionary and Health Care sectors underperformed in the second half, a mix of auto and travel related stocks weighed on the former: Marriott International -5.28%, Tesla -4.63%, Expedia -3.0% while Garmin Ltd declined 2.37%. Managed care and pharmaceuticals weighed on the Health Care sector in late trade: despite rising revenues Humana dropped 8.25% after missing earnings estimates, Molina Healthcare -3.92%, Regeneron Pharmaceuticals -3.10%.
- On the positive side, Materials and Energy sectors continued to outperform in the second half. Oil and gas shares continued to gain with ongoing support in crude (WTI +.92 at 73.27): Phillips66 +4.45%, ConocoPhillips +2.67% and Devon Energy +2.51%. Meanwhile chemical manufacturers buoyed the Materials sectors: DuPont de Nemours +8.55% after beating earnings estimates, as did Ecolab Inc +6.49% amid robust end user demand.
- Reminder, Tuesday afternoon earnings include: Upstart Holdings, Brighthouse Financial, Welltower, Confluent, DoorDash, Eversource Energy, Lyft, Zillow Group, Gilead Sciences and Edwards Lifesciences Corp.
USDJPY TECHS: Oversold But Bears Remain In The Driver’s Seat
- RES 4: 155.89 High Feb 3
- RES 3: 154.70 50-day EMA
- RES 2: 153.72 Low Jan 27
- RES 1: 152.89 High Jan 6
- PRICE: 152.33 @ 16:13 GMT Feb 11
- SUP 1: 150.93 Low Feb 07
- SUP 2: 149.69 Low Dec 9
- SUP 3: 148.65 Low Dec 3 ‘24 and a key support
- SUP 4: 148.01 Low Oct 9 ‘24
The pair is off lows, but retains a bearish theme in USDJPY. Last week’s move down reinforces current conditions. 151.06, 76.4% of the Dec 3 - Jan 10 bull leg, has been pierced. A clear break of it would open 149.69, the Dec 9 low. Firm resistance is seen at 154.70, the 50-day EMA. Note that the pair has entered oversold territory. A recovery would be considered corrective and would allow the oversold condition to unwind.
US OUTLOOK/OPINION: Seasonality At The Fore For Wednesday's CPI Release
The first few months of the year have historically seen an outsized share of eventual price increases for the year, although that pattern broke down in the early post-pandemic years as firms passed on cost increases at faster than usual rates. January accounted for an average 20% of eventual price rises in each year through 2017-19 (or 40% for Jan & Feb combined). That share plunged to just 3.5% in 2021 (10% for Jan & Feb) but since increased to 16% in 2023 and 17% in 2024 (35% for Jan & Feb). Wednesday’s annual revisions to seasonal adjustment factors could continue to see some normalization here, with the seasonal adjustment process essentially “looking” for larger relative increases this month compared to the past few years, but it’s very hard to know by how much.
Analysts are mixed on the extent to which “residual seasonality”, whereby the seasonally adjusted data still display a seasonal pattern, will play a role in January:
- Morgan Stanley: “We found an overall upward bias of 5bp to January core CPI, explained by acceleration in both core goods and services. We are adding that bias in our forecast.”
- Nomura: “We believe positive residual seasonality pushed up core CPI in January this year, but to a lesser extent than last year.”
- Wells Fargo: “We expect some lingering residual seasonality to buoy January’s core reading, but for this dynamic to be less pronounced than last year.
- JPM: “There is some risk that inflation will once again firm to start the year due to residual seasonality, but we think that many of the factors that boosted inflation readings during the first quarter of each of the past two years reflected either idiosyncratic factors or pressures that have since abated to some degree.”
- SocGen: “There is a significant contingent that believes the CPI is prone to seasonal biases favoring higher readings early in the year. However, we remain somewhat unconvinced, and if such a bias exists, revisions may serve to rectify it.”
- Barclays: "In The myth of residual seasonality, we argue that revisions to 2024 estimates will be minor, with little evidence that the strong January inflation prints in recent years can be attributed to residual seasonality.”
