The Fed will begin tapering its bond-buying program this month, reducing purchases of Treasury bonds by $10.000 billion per month and mortgage-backed securities by $5.000 billion. That would conclude the process near the end of June, but several economists believe the FOMC could accelerate it. A small majority expects rate hikes in early 2023, but others foresee increases in 2022. We expect volatility in financial markets to remain high as not only the Fed but other central banks around the world extract liquidity to combat rising inflation. The market may be losing confidence in the transitory nature of inflation. With a post-pandemic supply crunch fueling inflation and pushing central banks to tighten monetary policy, they have begun to question valuations. The economic recovery is also under pressure, as countries from China to Bulgaria report rising Covid cases. Investors are increasingly concerned that measures to contain COVID-XNUMX in China will hinder the country's economic recovery. Authorities in Beijing have suspended classes in some schools due to rising cases, as the Asian nation continues to implement a "zero-COVID" strategy. The government's warning to stock up on essential items to prepare for the winter months or emergencies only increases fears. Restrictions on steel production are becoming more common, given the problems in the construction industry and the need to ensure clear skies for the Winter Olympics.
The dollar (DXY) is posting gains to kick off the day in the Western Hemisphere, with the index gaining nearly 0.05% from its previous close despite early week losses. The positive shift in market sentiment made it difficult for the dollar to maintain its strength at the start of the week, but the currency's losses against its major rivals remained relatively limited ahead of key central bank events. Following the holidays in Europe and the Americas, investors will be closely monitoring short-term bond yields and the flattening of yield curves in major economies on Tuesday. We expect a narrow daily trading range between 93.7 and 94.2.
The Colombian peso (COP) appreciated 0,3% on Friday, closing at $3.767 per dollar, and remained unchanged during the previous week, discounting the interest rate increase by the Central Bank of the Republic. The outlook for the Colombian peso is mixed, influenced downward by the rate hike by the Central Bank of the Republic, which surprised the market with a 50 basis point increase. However, it remains under upward pressure following increased risk aversion in the region and a decline in oil prices. In this context, we expect a daily trading range between 3,740 and 3,790 pesos per dollar.
The Mexican peso (MXN) began trading mixed, with a 0.24% appreciation compared to Monday's close, trading at around 20.7909 Mexican pesos per dollar. The Mexican peso's performance is explained by high volatility after economic data indicated a mixed recovery in the country's manufacturing sector, ahead of a week packed with economic data in the United States and monetary policy decisions around the world. Meanwhile, while net positions for the currency remain negative on the Chicago Board of Trade (CBA) futures market, emerging market carry has improved due to a narrower rate differential, in line with the broader increases in the region. According to the Citibanamex expectations survey, further rate hikes in the country by Banxico are discounted. Thus, we expect a narrow daily trading range between 20.673 and 20.935.
The Chilean peso (CLP) opened the day depreciating, trading at 812.90 Chilean pesos per dollar, with the USD/CLP rising 0.21%, accompanied by a stable dollar index (DXY) and with copper futures prices trading slightly lower, reducing selling interest in the market, trading in a sideways range in recent days, awaiting new catalysts that indicate a new trend in the pair's price. In this context, we expect a tight daily trading range between 819.10 and 806.5.
The Peruvian sol (PEN) closed Friday trading at around 3.9915 per dollar, equivalent to a 0.26% depreciation compared to the previous Thursday's close. The currency's performance on the day was explained by the international market's performance, taking into account the taper outlook amid high inflation in the United States. Meanwhile, public social bonds were auctioned in the country, enjoying strong demand. On this front, Pedro Francke, the country's Minister of Economy and Finance, commented that the solid demand for these bonds reflects the still-significant confidence of the international market in the country's solid macroeconomic fundamentals. Thus, we expect a narrow daily trading range between 3.948 and 4.026.
The Chinese yuan (CNH) opened the session losing ground, trading at 6.3982 yuan per dollar, with the USD/CNH rising 0.08%, accompanied by moderate borrowing costs despite the cash being released to the market. We await economic indicators that suggest a new trend, as the pair's price has been in a sideways range in recent sessions. In this context, we expect a narrow daily trading range between 6.4050 and 6.3830.
The euro (EUR) opens the day with a 0.03% decline at a trading price of US$1.1602 per euro. The European currency began the day losing ground against the dollar following Monday's holiday in the eurozone. Following yesterday's macroeconomic data from both Europe and the United States, it became clear that the European economy has not yet fully recovered due to the contraction in retail sales. On the other hand, the US manufacturing PMI stood out and positively surprised the market, helping it gain ground against the euro. Among the relevant data for the market are the manufacturing PMIs from Spain, France, Italy, and the Eurozone. In this context, we expect a narrow daily trading range between 1.166 and 1.155.
The pound sterling (GBP) fell 0.15% to 1.3656 per dollar. Despite investor expectations of a rate hike by the Bank of England, the pair continued to fall for the third consecutive session. The currency has been primarily affected by tensions surrounding Brexit and issues with France over fishing rights, which have kept the British currency under pressure. We expect a daily trading range between 1.385 and 1.373 per dollar.
The Japanese yen (JPY) opened the session higher, with USD/JPY falling 0.31% to trade around ¥113.63, paring losses from two days earlier, where it hit an eight-day high of 114.44, likely in anticipation of the US FOMC meeting as Wednesday is a holiday in Japan. US bond yields continue to correct ahead of the Federal Reserve's decision. In this context, we expect a tight daily trading range between 114.10 and 113.30.
The Swiss franc (CHF) is opening the day with a 0.43% gain at 0.9129 francs per dollar. The European currency is starting the day with slight gains after the dollar strengthened as oil prices fell. Meanwhile, European macroeconomic data has been mixed, which is worrying investors, as inflation continues and supply chain bottlenecks are increasing. In this context, we expect a narrow daily trading range between 0.917 and 0.908.
The Canadian dollar (CAD) is starting the day with a 0.30% depreciation, equivalent to a quote of around 1.2407 Canadian dollars per US dollar, after the currency appreciated 0.15% yesterday amid favorable manufacturing activity data in the country. Today, the currency is responding primarily to the advance of the index that measures the strength of the dollar as the FOMC monetary policy announcement approaches. While oil prices retreat slightly, we expect a narrow daily trading range between 1.236 and 1.245.
The Australian dollar (AUD) depreciated 0.80%, reaching 0.7465. Amid the Reserve Bank of Australia's (RBA) latest statements, the pair has suffered a sharp decline. The RBA Governor noted that expectations for a rate hike are no longer as likely to be met and that it is unlikely to occur until the next maturity of its bonds, in 2024. Against this backdrop, we expect a daily trading range of 0.758–0.75.
The New Zealand dollar (NZD) opened the day with a 0.56% drop, trading at 0.7143. The pair has been struggling at the start of the second session of the week, reaching weekly lows. However, members of the Bank of New Zealand have signaled that a rate hike is imminent. Additionally, they expect the country's real estate sector to stabilize in the medium term, which could limit the currency's losses and consolidate some gains. We expect a daily trading range between 0.721 and 0.713.
We are convinced that every investor should diversify their investments across a variety of asset classes, regardless of market environment or trend, and work closely with their financial advisor to ensure their portfolio is adequately diversified and that their financial plan supports their long-term goals, time horizon, and risk tolerance. However, diversification does not guarantee profit or protect against loss. The preceding information, as well as the individual companies and/or securities mentioned, should not be construed as investment advice, a recommendation to buy or sell, or an indication of an intention to trade on behalf of any Acciones & Valores SA product. The securities mentioned may or may not be part of Acciones & Valores SA funds. For a complete list of Acciones & Valores SA portfolio holdings, please refer to the most recent annual, semi-annual, or quarterly report on our website. This document is for informational purposes only. Acciones y Valores is not responsible for the interpretation of such information, given that it does not cover all the aspects that an investor might consider necessary or desirable to analyze their decision to participate in a transaction, given that it is presented in an abbreviated form. For complete and absolute accuracy, investors must consult all documents provided through the website. Likewise, investors must conduct their own financial and legal analysis before making any investment decision. The values and figures contained herein are obtained from market sources presumed to be reliable, such as Bloomberg, Reuters, and the Issuers. The ratings contained in this report should not be considered investment recommendations or substitutes for ratings issued by certified credit agencies such as Moody's or Standard & Poor's. These ratings are solely quantitative; they do not include qualitative factors and depend on the financial information available in the market at the time of preparation. The opinions, estimates, and projections in this report reflect the author's current judgment as of the date of the report, and it is clarified that the content of the information contained herein is subject to change without notice. The authors' compensation is not associated with the results of the report or the recommendations made. The presentation and any preliminary documents regarding the products mentioned herein do not constitute a binding public offer; therefore, both the presentation and any other documents are subject to supplement or correct.
Héctor Wilson Tovar García Macroeconomic Analysis
Research Manager wtovar@accivalores.com
Laura Daniela Triana Pulido Equity Analyst daniela.triana@accivalores.com
Daniel Herrera Hernandez Fixed Income Analyst daniel.herrera@accivalores.com
Juan Pablo Bejarano Holding Sector Analyst juan.bejarano@accivalores.com
Andres Felipe Campos, Retail Sector Analyst andres.campos@accivalores.com
Daniel Felipe Pardo Energy Sector Analyst daniel.pardo@accivalores.com
Juan Felipe Herrera, Financial Sector Analyst juan.herrera@accivalores.com
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