Global stocks are extending a selloff, and NY stock futures are falling as investors await the minutes of the latest Fed meeting for more clues about the future of rates and how long they are expected to remain at high levels. S&P 500 and Nasdaq 100 futures are down nearly 0,2% each after the underlying indexes posted their biggest one-day drop in the past two months. European stocks are falling amid growing concerns about earnings reports.
The stock selloff has deepened amid growing signs that the world's central banks are far from finished with their fight against inflation, underscored by successive hawkish comments from Fed officials last week. Rising geopolitical tensions and poor earnings reports are further worsening the mood, outweighing optimism about China's reopening. U.S. central bankers will release the minutes of their latest meeting at 2 p.m. Wednesday, which may reveal how many of them see the need for further rate hikes.
Europe's EuroStoxx 600 is headed for a second day of losses. Lloyds Banking Group Plc fell, weighing on the FTSE 100 index, after 2023 results and guidance fell short of analysts' estimates despite announcing a £2.000 billion ($2.400 billion) share buyback. Miner Rio Tinto Plc fell after reporting lower-than-expected profit and cutting its dividend due to weak metals demand in China.
Disappointing earnings projections are beginning to worry investors. Walmart Inc. reported a weak earnings outlook yesterday that missed analysts' estimates, signaling another difficult year for the world's largest retailer. Home Depot Inc. also issued a forecast of declining earnings. Only 68% of S&P 500 companies reporting results this season have beaten estimates, compared to approximately 80% in recent quarters.
Market sentiment in the U.S. yesterday, Tuesday, marked a shift in sentiment toward rates. Investors are pricing in the federal funds rate rising to around 5,3% in June. That compares to a perceived peak of 4,9% just three weeks ago and follows increased rhetoric from central bank officials over the past week. An unstable geopolitical outlook hasn't helped. President Vladimir Putin said Russia will suspend its adherence to the New START nuclear arms treaty with the U.S., a decision Secretary of State Antony Blinken called "irresponsible." President Joe Biden responded to Putin, saying his current actions will not allow him to declare victory in Ukraine.
Oil extended its longest losing streak this year, with WTI contracts falling for a sixth day. The prospect of more aggressive interest rate hikes from the Fed to quell inflation has kept prices in check, despite growing evidence of a strong recovery in China following the end of the Zero-Covid policy.
In Colombia, industrial and retail confidence data will be released today. Some members of the taxi drivers' union announced that, following failed meetings with the government, they will go on strike starting this Wednesday due to high gasoline prices and the rise in ride-hailing apps such as Uber and Cabify. The most recent Citi survey showed that analysts lowered their 2023 growth forecast to an average of 1,05%, 16 basis points lower than in January, while inflation expectations are at 8,84% for the end of the year and 2024% for the end of 4,83. Likewise, the majority of economists surveyed predict an interest rate increase at the March monetary policy meeting, with expectations of 25 basis points. The Bank of the Republic postponed the date of its regular board meeting from February to Tuesday the 28th. No monetary policy decisions are scheduled for this month.
The COP closed yesterday's session trading at $4,961.50 per dollar (+0.91%).
- The DXY index increased by 0.30%. Preliminary data on the February PMI index for the United States were released yesterday. The composite PMI was 50.2 points, an increase from its previous reading and even higher than analysts expected. The services PMI, meanwhile, was the indicator with the largest increase, rising from 46.8 to 50.5.
- Both the composite and services PMIs returned to the expansion zone (over 50), marking their highest reading in eight months in both cases. The manufacturing PMI lagged the most but showed positive performance, reaching 47.8 points. These data confirmed that the economy remains stable and resilient. Furthermore, they demonstrate continued inflationary pressures, which could lead to increases in the monetary policy rate during the year.
- The key event of the day will be the minutes of the FOMC meeting. Although data on the performance of the economy has been released since its last decision, this document offers detailed information on the outlook the Fed is looking at for clues about the outcome of future interest rate decisions. Additionally, the IEA's crude oil inventories will be released amid a context in which Russia continues to disrupt crude oil supply.
- For its part, the Colombian peso's strength will be influenced by the international context. Today, industrial and retail confidence data will be released, which could confirm that economic activity is slowing.
- Furthermore, oil prices continue to decline amid expectations of a global recession.
- We expect a narrow trading range between COP$4,920 and COP$4,990 per dollar, with a lower limit of COP$4,890 and an upper limit of COP$5,000.
The EUR/COP closed yesterday's session trading at COP$5,287.96 per euro (+0.63%).
- The EUR/USD weakened (-0.35%). As with the United States, PMI data for the eurozone, France, and Germany were released yesterday, with mixed but generally positive results. The composite and services PMIs were higher than their previous readings and even better than market expectations. However, the manufacturing PMI showed a reading that was lower than both the market and January's expectations.
- Today, CPI data were released for Italy and Germany. For Germany, the annual CPI for January was 8.7%, compared to the 8.1% increase in prices in December 2022. In contrast, in Italy, the results showed a decrease in the price level, with an annual CPI of 10.1%, lower than the 11.6% in December. These data show that inflationary pressures are not easing in response to the ECB's contractionary monetary policy and will not do so at the desired level in the short term. Therefore, continued interest rate increases are also expected.
- We expect slight upward pressure on the euro, given mixed CPI data, which will be confirmed tomorrow with the eurozone CPI, increased geopolitical tensions surrounding the war between Russia and Ukraine, and a firm stance from Vladimir Putin. We expect a trading range for the EUR/COP pair between COP$5,260 and COP$5,300 per euro.
The British pound (GBP) closed yesterday trading at around USD$1.2102 per GBP (+0.51%).
- Yesterday, the UK PMI data was released. All three indicators—composite, services, and manufacturing—were higher than January's reading and even above market expectations. However, the CBI Industrial Trends Index, which measures the economic expectations of UK manufacturing executives, was lower than January's.
- Dovish expectations for the Fed and softer risk sentiment are benefiting the USD and limiting the pair's gains. Furthermore, in the absence of an agreement on the Northern Ireland protocol, the pound's uptrend may be short-lived.
- No macroeconomic fundamentals are expected in the United Kingdom today, and the currency's performance will be influenced by the international context, particularly the development of geopolitical tensions surrounding the war in Russia and Ukraine.
- Early morning quotes suggest a bullish outlook for the currency. The daily trading range is between USD$1.2030 and USD$1.2150 per GBP.
The Canadian dollar (CAD) is trading at CAD $1.354, weakening by (-0.18%).
- The USD/CAD is declining following the US PMI data and the strength of the dollar. Following a weaker CPI and negative retail sales reading, we are seeing a slowdown in the economy, causing the Loonie to lose value.
- Traders will be closely monitoring sales data from the manufacturing sector to understand the dynamics of the economy.
- In this context, we expect a trading range for the pair, limited between CAD $1.35 and CAD $1.36 per dollar.
The Australian dollar (AUD) weakened (-0.12%), trading at around USD$0.683 per AUD.
- The AUD is finding selling strength and is approaching its January low, where the currency has been pressured by the strength of the dollar. The international driver of the Fed minutes will reveal whether investors will seek risk appetite.
- This week we'll have the RBA minutes and the wage price indices.
- The USD$0.685 level per AUD was broken by the international driver, so we see the next floor for the currency at USD$0.68.
- We expect a quiet day ahead of the US holiday. The daily trading range is between USD$0.68 and USD$0.685 per AUD.
The New Zealand dollar (NZD) strengthened (+0.11%) and is trading at USD$0.6234 per NZD.
- The NZD strengthens as the RBNZ raises its policy rate by +50 bps, reflecting a buoyant economy.
- Among other macroeconomic data, the trade balance and credit card spending are expected to slow in the face of a contractionary RBNZ.
- We expect a sideways day due to the U.S. holiday. The daily trading range is between $0.622 and $0.626.
The Swedish krona (SEK) weakened (-0.22%) and is now trading at 10.3504 per dollar.
- The SEK reversed its trend from yesterday and is heading lower for today's session.
- The krone weakened slightly, pending today's Fed minutes announcement, which keeps the krone uncertain about its future direction.
- The daily trading range is between SEK $10.33 and SEK $10.47 per dollar.
The Mexican peso (MXN) strengthened today (-0.32%), with an exchange rate of over MXN$18.39 Mexican pesos per dollar.
- The Mexican peso has seen low trading volumes in recent days. There is an outlook for strength in the US dollar, which we believe has somewhat affected the Mexican currency's performance. The market will be attentive to mid-month inflation data tomorrow.
- We expect a downward session, with a daily trading range between USD$18.29 and USD$18.49 per MXN.
The Chilean peso (CLP) strengthened today (-0.48%), with an exchange rate of over CLP$802.57 Chilean pesos per dollar.
- The Chilean peso is looking for a direction to follow, with trading volumes somewhat low for several days. Yesterday's macroeconomic data managed to halt the Chilean peso's strength. Traders will be attentive to the Producer Price Index data on Friday.
- We expect a downward session with moderate trading volume and a narrow daily trading range between USD$799 and USD$809 per CLP.
The Brazilian real strengthened slightly at the start of trading today (+0.01%). The currency is trading at BRL$5.1680 per dollar.
- The Brazilian real is strengthening, continuing its upward trend today. However, it is clear that the real has no clear or consistent trend. We await today's Fed minutes, as monetary policy will directly influence the real.
- We expect a day with a trading range between BRL$5.15 and BRL$5.25 per dollar.
The Chinese yuan weakened today (+0.34%). The currency is trading at CNY$6.89 per dollar.
- The Chinese yuan is losing ground against the dollar today. The pair attempted to enter a range, but U.S. PMI data, which was in expansionary territory, continued the dollar's strengthening trend.
- We expect an upward session with a trading range between USD$6.86 and USD$6.90 per CNY.
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| Hector Wilson Tovar Garcia: Research Manager – wtovar@accivalores.com
| Jose Julian Achury Molina: IE Analyst - jose.achury@accivalores.com
| Jahnisi Arley Caceres Gomez: IE Analyst – jahnisi.caceres@accivalores.com
| Luisa Fernada Ovalle Arias: IE Analyst – luisa.ovalle@accivalores.com
| Andrés Madero: IE Analyst – andres.rubio@accivalores.com
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