Weekly Reports

03/06/2024
03/06/2024

Weekly Market Report

The “soft landing” scenario expected for this year in the U.S. would start to be reflected, after activity data slowed to +1.3% annualized growth in the first quarter of the year. Meanwhile, the personal consumption expenditures (PCE) price index for April was in line with expectations, registering +2.8% year-on-year in the non-food and non-fuel measure, the preferred inflation benchmark for the Federal Reserve's (Fed) monetary policy decisions. Given that the analysts' consensus expectation is that the Fed, given this economic scenario, will cut the benchmark rate once by the end of the year, leaving it at around 5.25%, the scenario of high rates for a longer period of time is maintained. Following the previous line, high and more attractive yields can be expected for bonds of excellent credit quality in general for a longer period of time, with the short end being the most attractive for conservative investors. Therefore, U.S. Treasury yields traded mixed during the week, compressing in the short and mid-range of the curve, and widening in the long end of the curve. The 1-year bond closed at 5.17%, the 3-year at 4.68% and the 10-year at 4.50%. At the regional level, yields on 10-year dollar sovereign bonds in Brazil and Mexico advanced to 6.44% and 5.75%, respectively. 

Weekly Report

International

The week's focus in the United States will be on the labor market evolution data for May, with unemployment projected at 3.9% and the creation of 175 thousand new jobs. Meanwhile, the European Central Bank will meet again to make its monetary policy decision, with the expectation of a cut in the reference rate to 4.25% from the current 4.5%, the level it has maintained since September 2023. Also, in the European bloc, April retail sales will be released.

Recent data on slowing activity in the U.S. and falling prices led to a correction in market expectations, with a cut in the interest rate to 5% by the end of the year. In this sense, the PCE price index for April was in line with estimates, registering +2.7% year-on-year and +0.3% monthly; while the core measure (excluding food and energy) -measured for the Federal Reserve's monetary policy decisions-, registered +2.8% year-on-year and +0.2% monthly. In addition, it is worth noting that the second estimate of the 1st quarter GDP slowed down to +1.3% annualized, lower than the +1.6% previously estimated and +3.4% of the previous quarter. 

Against this backdrop, and after several statements by members of the Fed's monetary policy committee reaffirming that current conditions do not seem appropriate for lowering the interest rate, US Treasury bond yields traded mixed during the week, compressing in the short and mid-range of the curve, and widening in the long end of the curve. Thus, the 1-year yield went from 5.20% to 5.17%, the 3-year from 4.72% to 4.68% and the 10-year from 4.47% to 4.50%. Meanwhile, the average yield of Investment Grade corporate bonds (ETF LQD) advanced to 5.7%. Meanwhile, the main equity indices closed down -1.1% on average.

Former U.S. President Donald Trump, and candidate for the Republican party, was found guilty of charges of falsifying documents for his business dealings in a New York court. Analysts and investors will be attentive to how this fact may impact his approval rating, considering that he leads the polls average with 41.3% versus 39.3% for Joe Biden, current president and representative of the Democratic party. Considering that these elections have an effect on the financial market, it is expected that the development of these events will generate volatility in the short term. 

Finally, in the Eurozone, May inflation advanced +0.2% month-on-month and +2.6% year-on-year; while core inflation registered +0.4% month-on-month and +2.9% year-on-year. It is worth noting that the year-on-year data accelerated slightly and came in above expectations. On the other hand, unemployment in April remained at 6.4%. Thus, the euro stood at 1.09 per dollar, while the yield on the 10-year German Treasury bond ended at 2.7%.

 

Regional

The week's focus in Brazil will be on the publication of the 1Q GDP, with an estimated +2.2% y-o-y growth. In Mexico and Chile, inflation for May will be released, with the latest records of +4.7% and +4% y-o-y increases, respectively; at the same time, economic activity for April will be released in Chile. 

Regarding Latin American sovereign debt performance, 10-year dollar bond yields in Brazil and Mexico went from 6.41% and 5.68% in the middle of the previous week, to the current level of 6.44% and 5.75%, respectively. 


In Brazil, mid-May inflation came in below expectations, rising +0.4% versus the previous period and +3.7% y-o-y, versus estimates of +0.5% and +3.75%, respectively.  As a result, the exchange rate closed +1.6% higher on a weekly basis to 5.3 reais per dollar, in line with the looser monetary policy and downward inflationary pressures.

In Chile, April retail sales -a proxy indicator of economic activity- advanced +3.6% y-o-y, above the previous performance, and in line with expectations. Against this backdrop, the benchmark stock index ended the week with a -2.6% decline.

27/05/2024
27/05/2024

Weekly Market Report

The minutes of the last Federal Reserve (Fed) monetary policy meeting, in which the reference rate was maintained at the current 5.5%, reaffirmed the scenario of higher rates for longer than expected, moderating expectations of cuts since "current conditions are not opportune", although the latest inflation data showed some relief. This high interest rate environment results in high and more attractive yields for bonds of excellent credit quality in general, with the shortest ones being the most suitable for conservative investors. Against this backdrop, U.S. Treasury bond yields widened across all maturities during the week, with the 1-year bond at 5.20%, the 3-year at 4.72% and the 10-year at 4.47%. At the regional level, in Mexico, the Gross Domestic Product (GDP) for 1Q1 grew +1.6% y-o-y, in line with expectations. In Chile, the Central Bank cut the benchmark rate to 6%, while 1Q GDP expanded +2.3% y-o-y, below expectations.

Weekly Report

International

The week's focus in the United States will be on the release of the Personal Consumption Expenditure (PCE) price index -the Fed's preferred measure for monetary policy decisions- for April, with year-on-year increases of +2.7% and +2.8% in the measurement without food and energy (core) expected. In addition, the 2nd estimate of the Gross Domestic Product (GDP) for the 1st quarter will be released, with expectations of +1.2% annualized. In the Eurozone, inflation for May will be released, with expectations of +2.6% year-over-year and +2.8% in core inflation. 

The minutes of the last monetary policy meeting of the Federal Reserve (Fed) revealed that the members of the committee agree in keeping the reference rate at high levels, since conditions are not ripe to start reducing it, while some of them slipped that it might be necessary to tighten the stance to return inflation to the 2% target, despite the certain relief shown by the latest April data. Although the analysts' consensus expects between 1 and 2 rate cuts, this scenario would have a positive short-term impact on bonds at a global level, with the short end of the curve being the most convenient for conservative profiles and the medium end for those who are moderate and growth-oriented. 

 

In this context, US Treasury bond yields were compressed during the week. Thus, the 1-year yield went from 5.13% to 5.20%, the 3-year from 4.61% to 4.72% and the 10-year from 4.42% to 4.47%. At the same time, the average yield of Investment Grade corporate bonds (ETF LQD) remained at 5.5%. Meanwhile, the main equity indices closed negative for the most part, with the exception of the Nasdaq with a +1.4% increase, while the Dow Jones fell -2.3%.

The corporate balance sheet season for the first quarter is coming to an end, with Nvidia standing out this week, with earnings per share (EPS) of 6.12 and revenues of USD 26.04 billion, well above expectations (4.61 and USD 20.55 billion, respectively). It is important to note that, in the last 12 months, the share price grew +246%, accumulating +11% after presenting its balance sheet. Overall, 96% of S&P 500 companies reported results, with 78% of the total exceeding earnings per share expectations; and 61% reporting revenues above expectations. 

The May manufacturing Purchasing Managers' Indices (PMI) beat expectations in the United States and the Eurozone. They came in at 50.9 and 47.4 points, respectively, although in the European bloc they were below 50 points, which separates economic expansion from economic contraction. As a result, the EuroStoxx 50 fell -0.6% for the week. 

Regional

The week's focus in Brazil will be on the release of mid-May inflation, which is expected to increase +0.5% versus the previous period and +3.7% y/y. In addition, the unemployment rate for April will be released for Brazil, Mexico and Chile; while in Chile, industrial production and retail sales for April will also be released.

In Mexico, the Gross Domestic Product (GDP) for the 1st quarter of the year expanded +1.6% y-o-y; and +0.3% q-o-q, exceeding the +0.2% forecast and the previous performance. However, economic activity slowed down in March and came in below expectations, posting +0.3% monthly and -1.3% year-on-year. Against this backdrop, the benchmark stock index closed down -3.5% for the week.

On the other hand, in Chile, the 1Q GDP grew +2.3% y-o-y and +1.9% q-o-q, both performances below estimates (+2.5% and +2%, respectively). As a result, the Central Bank of Chile reduced the monetary policy rate to the current 6% (-50 basis points), in line with expectations, which is why the exchange rate advanced +1.5% on a weekly basis. 

Regarding the performance of Latin American sovereign debt, 10-year dollar bond yields in Brazil and Mexico rose from 6.40% and 5.70% in the middle of the previous week, to the current level of 6.41% and 5.68%, respectively. 


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