Investors will be assessing employment data for further clues about the economy's trajectory and monetary policy, and are poised for continued volatility through December, stemming from expectations of central bank policy tightening to combat inflation just as the omicron variant complicates the outlook for a recovery from the pandemic. Some investors are buying the dips as GlaxoSmithKline Plc assured that its Covid-19 antibody treatment appears effective against the omicron strain, and the World Health Organization said vaccines will likely protect against severe complications. The Fed's beige book notes that the U.S. economy grew at a modest to moderate pace through mid-November, while price increases were widespread amid supply chain disruptions and labor shortages.
The dollar (DXY) reversed last week's gains and lost nearly 0.15%, forcing the index to trade at 95.87. FOMC Chairman Jerome Powell reiterated his observations on the monetary policy outlook on the second day of his testimony. Ahead of Friday's November jobs report, the weekly initial jobless claims data will be the highlight of the US economic calendar. We expect tight trading ranges between 95.6 and 96.3 during the day.
The Colombian peso (COP) rose for the second consecutive day, gaining 0.7% on Tuesday, closing at 3,966.56 per dollar, as a result of improved regional prospects and a stable dollar. The outlook for the Colombian peso is mixed, driven lower by a pullback in the 5-year CDS and improved regional prospects. However, oil prices fell 0.38%, continuing their decline below $70 per barrel, which yesterday triggered a rebound from 3,937.20 pesos per dollar. In this context, we expect a daily trading range between 3,930 and 3,990 pesos per dollar.
The Mexican peso (MXN) began trading with a 0.64% appreciation, trading at around 21.3724 Mexican pesos per dollar. The currency is primarily responding to the weakening index that measures the strength of the dollar, while oil prices are rising. Meanwhile, concerns about the country's liquidity have largely diminished, considering that international reserves have increased at a faster pace than the money supply and foreign imports. Despite this, the same entity revealed in its inflation report that it expects the economy to grow at a rate of 5.4%, up from the 6.2% estimated in its previous report, taking into account the economic slowdown due to the spread of the coronavirus and ongoing inflationary pressures. We anticipate a narrow daily trading range between 21.153 and 21.527.
The Chilean peso (CLP) opened the day appreciating 0.52%, trading at 834.20 Chilean pesos per dollar. The rise of the Omicron variant, the discussion of the fourth pension withdrawal, and the presidential runoff were all significant factors in the pair's movements. This was accompanied by a decline in the DXY index and a rise in copper futures prices, which partially offset the previous day's losses. In this context, we expect a narrow daily trading range between 843.70 and 825.2.
The Peruvian sol (PEN) closed Wednesday with a 0.14% depreciation, trading at 4.0710 soles per dollar. Amid an international context of lower risk aversion, the currency's performance was driven primarily by the country's annual inflation rate, which reached 5.8%, the highest rate recorded in the last 12 years. While this implies an increased likelihood of further interest rate increases by the Central Bank of Peru (BCRP), it highlights the structural challenges in controlling prices. We forecast a narrow daily trading range between 4.017 and 4.112.
The Chinese yuan (CNH) opened trading lower at 6.3764 yuan per US dollar, with the USD/CNH gaining 0.08%, driven lower by strong export growth and increased foreign interest in local currency assets. However, the recent depreciation is a result of further strengthening of the People's Bank of China's expectations management, and demand for foreign exchange settlements has begun to cool. In this context, we expect a narrow daily trading range between 6.3850 and 6.3680.
The euro (EUR) opens the day with a 0.15% gain at a trading price of US$1.1335 per euro. The European currency begins the day slightly declining against the dollar, which also showed weakness at the opening. The rise in inflation data in the Eurozone showed a 5.4% increase in the producer price index, higher than the 3.5% expected. Despite the volatility in European equity markets, the euro remains stable thanks to Powell's remarks and strong US economic data. Meanwhile, during the day, there is no significant data that could affect the currency's movements; however, any negative news from Omicron could mean significant losses. In this context, we expect a narrow daily trading range between 1.139 and 1.129.
The pound sterling (GBP) appreciated 0.39% to 1.3327 per dollar. The pair started the day in positive territory amid broad dollar weakness. However, the impasse between the UK and the EU over the Northern Ireland Protocol and the worsening dispute over post-Brexit fishing rights could limit the British currency's gains. In this context, we expect a narrow daily trading range between 1.337 and 1.326 per dollar.
The Japanese Yen (JPY) opens the session depreciating, with the USD/JPY increasing 0.10%, trading around ¥112.85, as a result of renewed risk sentiment, as expectations of a rate hike by the Federal Reserve in the United States increase, causing greater demand for the dollar and a depreciation against its trading peers, however concerns about the Omicron variant could cause appreciations in the yen as a safe-haven asset. In this context, we expect a narrow daily trading range between 113.90 – 112.70.
The Swiss franc (CHF) opens the day with a 0.16% drop to 0.9190 francs per dollar. The European currency begins the day with an even further decline, along with the dollar. Markets remain uncertain and nervous about Omicron. Yesterday, the first patient in the United States was announced, most importantly, the patient had a complete scheme. However, Powell's statements have improved market sentiment. In this context, we expect a narrow daily trading range between 0.923 and 0.915.
The Canadian dollar (CAD) began the day with a marginal 0.02% appreciation, equivalent to a quote of around 1.2816 Canadian dollars per US dollar. The currency is responding to the decline in risk aversion, in line with the stabilization of stock futures and the decline of the DXY as investors weigh the risks posed by the omicron variant against the monetary policy outlook. Meanwhile, oil prices are recovering slightly this morning, while, locally, investors await labor market data, which will be released tomorrow. We therefore anticipate a narrow daily trading range between 1.276 and 1.286.
The Australian dollar (AUD) appreciated 0.06% to 0.7108. The pair started the day with a modest advance amid caution in global markets due to the spread of the new variant. For now, investors are waiting for significant catalysts from the local economy that could boost the currency. In this context, we expect a narrow daily trading range between 0.714 and 0.706.
The New Zealand dollar (NZD) opens the day with a 0.10% gain, trading at 0.6813. Amid a more latent risk appetite in Asian markets, the pair has managed to consolidate a positive trend at the start of the session. For now, investors await details on how the new variant continues to spread and its economic implications. In this context, we expect a narrow daily trading range between 0.685 and 0.677.
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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