NY stock futures rose on Tuesday after China eased its strict "zero-Covid" protocols, easing investor concerns about global growth. China halved the time new arrivals must spend in isolation, the biggest change yet to a pandemic policy that has left the country isolated and fueled economic concerns. Iron ore and copper reversed losses, while oil declined amid risks of supply disruptions. Rallies in risk assets have proved fleeting this year as higher borrowing costs to combat inflation restrict economic activity in a variety of countries.
European Central Bank (ECB) President Christine Lagarde is planning an initial 25 bp hike in July, but policymakers appear ready to ramp up measures if necessary to address record inflation. The ECB could activate the bond-buying capacity intended as a first line of defense against a potential debt market crisis. The US trade deficit narrowed in May to its lowest level this year as exports surged to record levels. Meanwhile, the People's Bank of China (PBoC) has vowed to maintain monetary policy support to aid the economy, with stimulus likely focused on boosting lending rather than cutting interest rates. G7 nations have agreed to stick with Ukraine to the bitter end and raise the cost to Russia for its aggression, leaving many of the details of how to do so unresolved.
The dollar (DXY) is moving sideways above 104.0, with a value of 104.230 in early trading today. U.S. stock futures reflected a cautious trait, fluctuating between gains and losses so far. The Fed's rate hike narrative has cooled amid growing concerns of a sharp economic slowdown. However, U.S. durable goods and pending home sales data show stronger-than-expected results, hinting at a healthy U.S. economy, which could withstand large rate hikes by the Federal Reserve. Amid the gloomy mood, safe-haven demand for U.S. bonds has returned, causing a pullback in U.S. Treasury yields. Benchmark U.S. 10-year yields are down 0,50% on the day at 3,18%, after hitting a daily high of 3,22% on Monday. We expect a trading range between 103.8 and 104.9, with a mainly bullish trend.
The Colombian peso (COP) closed at $4,131 pesos, with an associated depreciation of 0.85% compared to the previous close. The Colombian peso recorded its largest loss in two years the week after leftist Gustavo Petro won the presidential elections. External pressures such as low oil prices, which reached a monthly low on Wednesday, were the main source of weakness for the Colombian currency. The same occurred with the currencies of Chile, Brazil, and Peru. Demand for dollars came from the real sector and the derivatives market, while supply came from some foreign agents. This week we are closely monitoring the appointment of the Minister of Finance and Public Credit, with José Antonio Ocampo being one of Petro's most frequently nominated candidates. In this context, we expect a narrow daily trading range between $4,060 and $4,120.
The Mexican peso (MXN) opens the day with a 0.35% upward move, trading at 19.97. The pair is weakening, while equity markets performed well on Thursday. Therefore, the recovery in the stock markets is helping emerging market currencies. However, rising inflation remains a problem worldwide, driving interest rate hikes. In Mexico, President Manuel López Obrador said Tuesday that a plan to lower food prices is being prepared, although he did not provide details. In this context, we expect a narrow daily trading range between 20.073 and 19.765.
The Chilean peso (CLP) opened the day appreciating 1.85%, trading at 903.18 Chilean pesos per dollar, following the announcement that the Ventanas smelter will close locally, marking a historic shift in Chile's environmental policy. Also significant was the fact that Senators Rincón and Pugh responded to the government's criticism of amendments to the Fintech Law. In this order, the parliamentarians outlined their arguments for presenting a series of amendments to the processing of the regulations governing companies in the sector. In this context, we expect a daily trading range of 907.748–887.992.
The Chinese Yuan (CNH) opens the session appreciating, trading at 6.7122 yuan per dollar, with the USD/CNH advancing 0.30%, this in a context in which the G-7 agrees to increase pressure on Russia and issues warnings to China, causing in this order, The democratic powers activate the design of a price cap mechanism for Russian crude oil and demand that Beijing stop the Russian war in Ukraine. In this context, we expect a daily trading range between 6.667 - 6.713.
The euro (EUR) depreciated by -0.29% intraday, but had no difficulty holding above 1.0500 at 1.0545. The euro is trading in a tight range below 1.06. Although it made some gains yesterday, the single European currency temporarily broke above 1,06, but failed to hold these levels and returned to lower prices. The market is closely watching statements from European Central Bank President Christine Lagarde, who will attend the Central Banking Conference in Portugal from today through tomorrow, amid important developments in the field of central banking. It remains unclear whether President Lagarde's remarks could provide a significant boost to the euro beyond the temporary. Buyers of the currency would find profits if the ECB's rhetoric becomes more aggressive regarding future interest rate hikes. In that context, we expect a trading range between 1.05 and 1.062.
The pound sterling (GBP) started the day strengthening by 0.22%, reaching $1.2236. The renewed rise in the main currency is driven by the mixed market sentiment, fueled by rising global bond yields. Significant for the currency was the fact that last Friday, Bank of England Chief Economist Huw Pill said that interest rates would be the primary monetary policy tool, as the bank prepares to initiate quantitative easing. Furthermore, it is worth noting that inflation in the United Kingdom reached its highest level in 40 years, 9.1%, so analysts expect the central bank to raise rates by 25 basis points in August. In this context, we expect a narrow daily trading range between $1.23 and $1.215.
The Japanese yen (JPY) opened the session weakening, with USD/JPY advancing 0.62%, trading around 136.25 yen. This is happening against a backdrop of rising European stocks and Wall Street futures also in the green. The moderate gain was supported by the easing of COVID-137.3 restrictions in China. Thus, the dollar is posting mixed results while the yen resumes its decline. Also of importance is the fact that the BOJ's yield curve control policy is unlikely to change in the short term. In this context, we expect a narrow daily trading range between 135.192 and XNUMX yen.
The Swiss franc (CHF) is opening the day with a 0.48% decline to 0.9777 francs per dollar. This comes in a context in which rising US Treasury yields continued to support the dollar, which in turn benefited the USD/CHF. The decline in risk sentiment has also been significant, thanks to expectations of monetary policy tightening by central banks. In this context, we expect a narrow daily trading range of 0.981–0.971.
The Canadian dollar (CAD) is starting the day stronger, with the exchange rate now at C$1.2845 per dollar, down 0.26% from its previous close. The Canadian dollar is gaining ground against the US dollar as global risk sentiment wanes, prompting some selling around the safe-haven US dollar. Currently, the modest rebound in crude oil prices is benefiting the commodity-linked currency and putting downward pressure on the USD/CAD pair. Furthermore, the Canadian dollar received additional support from strong domestic consumer inflation figures released Wednesday, which raised bets for a 75 basis point rate hike by the Bank of Canada in July. Against this backdrop, we expect a narrow daily trading range between 1.301 and 1.29.
The Australian dollar (AUD) started the day weakening 0.28% to 0.6914. The pair regained positive traction on Friday and climbed back above the 0.6900 mark. A significant drop in commodity prices this week appears to have eased fears about persistently rising inflationary pressures and boosted investor confidence. This was evident in the risk-on momentum in global equity markets, which, in turn, triggered some selling around the safe-haven US dollar and benefited the risk-sensitive Australian dollar. That said, the worsening global economic outlook could curb any optimistic moves in the markets. Against this backdrop, we expect a narrow daily trading range between 0.634 and 0.626.
The New Zealand dollar (NZD) is opening the day with a 0.34% gain, trading at 0.6296 US dollars per New Zealand dollar (NZD/USD). The pair is gaining strength as the US dollar falls out of demand amid growing acceptance that the Fed will maintain its aggressive tightening policy and raise rates at a faster pace to combat persistent inflation. This, coupled with a renewed wave of global risk aversion, provided an additional boost to the safe-haven dollar and exerted downward pressure on the perceived riskier NZD. Against this backdrop, we expect a narrow daily trading range of 0.632–0.624.
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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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