The rally in global stocks stalled as traders assess the risk of lingering geopolitical tensions in Ukraine and the impact of rising inflation on monetary policy. Inflation readings in both the US and UK rebounded, a surprise highlighting a brutal cost-of-living crisis that will only worsen this year, leading to the price of swift action to contain it. Traders are awaiting the latest Fed minutes on Wednesday, which could shape opinions on how quickly the Fed will raise interest rates and reduce its bond holdings in the coming months. Separately, the European Union won the right to use strict new powers to deny Poland and Hungary billions of euros in EU funds for allegedly failing to meet the bloc's democratic standards.
The dollar (DXY) reversed some of its early week gains and lost -0.20% from its previous close, forcing the indicator to trade above 95.802. The positive shift in market sentiment amid rising hopes for a de-escalation of the conflict between Russia and Ukraine allowed risk-on flows to dominate financial markets on Tuesday. Later in the day, January retail sales and industrial production data will be released. We expect narrow trading ranges between 95.3 and 96.2 during the day.
The Colombian peso (COP) has fallen for the third consecutive day, depreciating 0.15% on Tuesday, closing at $3,950.9 per dollar. The local currency is depreciating despite the release of annual growth data on Tuesday, which came in at 10.6% for 2021, exceeding market expectations. Therefore, Colombian fundamentals are supportive for the currency, but the potential for further gains could be limited. Given that rapid economic growth, high oil prices, and potentially increased crude oil production point to a brighter outlook for Colombia, political uncertainty remains high. Therefore, the political risk premium is not expected to compress in the short term, political developments are likely to continue to weigh on COP in the near future. In this context, we expect a narrow daily trading range between $3925 and $3965.
The Mexican peso (MXN) opened the day with a downward movement of 0.0200, trading at MX$20.3766, with a high of 20.4123 and a low of 20.3489 in its European session. The peso traded at 20.38 units per dollar near the close of trading on Tuesday, with an appreciation of 0.08%, marking its third consecutive day of gains. The Mexican currency advanced after an easing of tensions between Russia and Ukraine, which returned global investors' appetite for risky assets. Over the last three sessions, the local currency has accumulated a yield of 0.75%. Russia announced that some of its troops were returning to their bases after exercises near Ukraine, flouting Western warnings of an imminent invasion, although both NATO and the United States said they had not yet seen any evidence of an escalation that could avert a conflict. Based on its market structure, a trading range of 20.32 to 20.53 is expected.
The Chilean peso (CLP) opened the day appreciating 0.39%, trading at 797.05 Chilean pesos per dollar. The Chilean peso began the day gaining ground at a time when global stocks are on the rise thanks to the climate of optimism regarding the easing of geopolitical tensions between Ukraine and Russia. Thus, the peso benefited from the recent news of the return of Russian military forces to their home bases. In this context, we expect a narrow daily trading range between 806.093 and 787.107.
The Peruvian sol (PEN) closed Monday at S/3.7990. For the second consecutive day, the currency pair rebounded to trade at S/3.80 (0.09%) on Tuesday afternoon, according to information from the Central Reserve Bank of Peru (BCRP). Meanwhile, the parallel exchange rate stood at between S/3,79 for buying and S/3,82 for selling. Despite the result, the Peruvian sol only depreciated by -0,13%, according to Bloomberg. During the session, the Central Bank of Peru held an auction of 3-month BCRP CDVs: S/600 million at an average margin of 0.04% and 1-month BCRP CDs for S/600 million at an average interest rate of 3.48%. Added to this were the fixed-rate currency swaps for S/. 200 million at 6 months, at an average rate of 0.52%. In line with its market structure, the intraday trading range is expected to be limited between 3.72 and 3.865.
The Chinese yuan (CNH) opens the session slightly higher, trading 0.0035 higher at 6.3402, trading near its Asian session high of 6.3421. The consolidation phase in the pair appears to be over, and the pair could now drop to 6.3230 in the coming weeks. After last week's decline, the US dollar staged a sudden and sharp decline, plummeting to a low of 6.3329 during the New York session. The consolidation phase is over, and the pair is likely heading lower. The level to watch is the January low near 6.3230. Only a strong break of 6.3585 would indicate that the scenario for a lower dollar is incorrect. Against this backdrop, we expect a tight daily trading range between 6.30 and 6.3560.
The euro (EUR) is opening the day with a 0.27% appreciation at a trading price of US$1.1385. The European currency is starting the day with further gains amid the ongoing risk sentiment due to the conflict between Russia and Ukraine ahead of the release of the Fed minutes and US retail sales data. Today, the currency is awaiting possible statements from Vladimir Putin following Biden's skeptical comments about the Russian troop withdrawal. In this context, we expect a narrow daily trading range between 1.142 and 1.134.
The British pound (GBP) opened the day with a 0.14% depreciation, reaching $1.3557, holding steady above the mid-$1,3500 level. The pair saw a number of factors support it for a second consecutive day's gains. The receding tensions between Russia and Ukraine undermined the safe-haven USD and extended support. A stronger British CPI boosted BoE rate hike bets and provided an additional boost to the major. Finally, Brexit uncertainties limited gains ahead of the US macro data and the FOMC meeting minutes. Against this backdrop, we expect a narrow daily trading range between $1.361 and $1.351.
The Japanese yen (JPY) opened the session lower, with USD/JPY rising 0.08% to trade around ¥115.72. The pair continued its winning streak for the third day, its longest since December 15. The positive risk tone for the safe-haven JPY offered support to USD/JPY, accompanied by modest USD weakness, keeping bulls on the defensive and limiting the pair's upside. Upbeat Fed expectations and elevated US bond yields should act as a tailwind for the USD, as investors focus on US retail sales figures for the time being, looking for some momentum ahead of the FOMC meeting minutes. Against this backdrop, we expect a tight daily trading range between 116.118 and 115.33.
The Swiss franc (CHF) opens the day with a 0.08% gain at a trading price of 0.9246 francs per dollar. The European currency begins the day in positive territory, amid new news about the conflict that has erupted between Russia and Ukraine in recent days. It has thus benefited from the announcement of a possible easing of tensions between these two countries after Russia's Southern Military District decided to withdraw its forces and return to its bases. In this context, we expect a narrow daily trading range between 0.929 and 0.922.
The Canadian dollar (CAD) opens the day at C$1.2680, with a slight downward change of 0.0039, rebounding from its European session high of 1.2729. Traders are keeping an eye on the Canadian inflation data released this morning. The CPI took a step back in December, with a reading of -0.1% month-over-month. However, inflation is expected to have jumped in January, with a consensus for a strong gain of 0.6%. A reading within expectations would indicate that high inflation remains, putting pressure on the Bank of Canada to take aggressive measures to curb inflation. BoC Governor Tiff Macklem has said that more rate hikes are coming to reduce inflation to the central bank's 2% target, and there are high expectations that the BoC will match the Federal Reserve in March and raise rates by 25 basis points. In this context and in line with its market profile, a trading range between 1.2620 and 1.28 is expected.
The Australian dollar (AUD) opens the day with a 0.38% depreciation, reaching 0.7179. The pair climbed to a new weekly high; upside potential appears limited ahead of the FOMC minutes. The AUD/USD gained ground mainly thanks to a positive risk tone, which undermined the safe-haven USD and benefited the riskier Australian dollar. Hawkish Fed expectations and US bond yields should limit USD losses and limit the pair. Finally, investors are eagerly awaiting US retail sales data to gain some momentum ahead of the FOMC minutes. Against this backdrop, we expect a narrow daily trading range between 0.722 and 0.714.
The New Zealand dollar (NZD) opened the day with a 0.17% depreciation at 0.6650, little changed from its 0.4% close in New York. The pair continues to trade within the 0.6530/0.6891 range recorded in January, with a bearish bias now that the trend line rising from the January low has been broken. The average price of pink whole milk powder at US$4,503 per tonne versus US$4.324 at the previous auction, and finally, the 10-year yield rose 2bp to 2.84%, as the market awaits the New Zealand government's 2022 budget presentation. In this context, we expect a narrow daily trading range between 0.669 and 0.662.
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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