- Colombia: BanRep Survey—Inflation expectations improve, but interest rates are expected to close at a higher level
A strong Aussie jobs report was a small negative for the global rates complex overnight that was then followed by steadily rising yields since the European open. There has been little on tap to drive trading while markets wait for the ECB’s 8.15ET decision, US retail sales and jobless claims at 8.30ET, Lagarde’s presser at 8.45ET, and US industrial production at 9.15ET. The ECB is widely expected to lower its policy rates by 25bps today and likely strike a more worrying tone regarding economic conditions that would point to another 25bps move in December (though don’t expect this to be made explicit). US jobless claims may end up being the biggest market mover as a surprising jump in initial claims on Hurricane Helene/auto layoffs may reverse in today’s data.
Aussie rates closed weaker by 4–6bps with a small flattening bias while we have about half of those losses in German and UK rates, and ditto for USTs with the exception of the front end that is only about 1bp weaker. It’s a bit of a mixed market mood this morning, as all major currencies except the AUD (only a bit firmer) are tracking losses—albeit small—versus the USD, but US equity futures are about 0.5% higher thanks to encouraging results from chipmaker TSMC that offset the less optimistic ASML results earlier this week.
Oil prices are about 0.5% stronger, which is great in comparison to a 1.5% drop in copper and 5% slide in Singapore iron ore futures as—here we go again—Chinese officials disappointed at another presser this morning, announcing greater support to complete unfinished housing that means little for actual steel (iron ore) demand. As for oil, there’s been no real developments on the Israel-Iran front but there’s always a headline around the corner to trigger sharp moves.
Along these lines, Trump headlines are also having intraday impacts on Mexican assets amid the former President’s rising victory odds, with his recent comments that Mexico will not sell a single car to the US and that he will bring back tariffs weighing on the MXN this week, leaving it just shy of the 20 pesos level (at 19.95, at writing).
We have a fairly quiet Latam day ahead with no key data on tap during market hours while we wait for the BCCh’s policy announcement at 17ET. Like the ECB, Chile’s central bank is almost universally expected to roll out a 25bps cut, to 5.25%, but (like our Santiago colleagues outline here) it may show a more guarded tone regarding upcoming meetings amid external risks and possible upside inflationary pressure from loose fiscal policy. Somewhat counterintuitively, S&P upgraded its outlook for Chile from negative to stable yesterday, staying at A. The ratings agency notes “We think the government’s commitment to fiscal consolidation will stabilize its debt ratios in the coming years.”
—Juan Manuel Herrera
COLOMBIA: BANREP SURVEY—INFLATION EXPECTATIONS IMPROVE, BUT INTEREST RATES ARE EXPECTED TO CLOSE 2024 AT A HIGHER LEVEL
The central bank (BanRep) released a survey on economists’ expectations for October. Inflation expectations show an encouraging outlook, in line with a continued reduction in inflation. Inflation expectations for the end of 2024 were revised downwards, from 5.56% in the September survey to 5.47% in October, a figure like that projected in February 2024 (5.48% YoY). For the 1-year horizon, the expectation stood at 4.13%, and for 2 years at 3.44%, both expectations showing a decrease compared to the previous survey of 6 and 5 basis points, respectively (chart 1). As for short-term inflation expectations for October, the expectation stands at 0.17% m/m, which could lead to inflation falling to 5.73% from the current 5.81%. Scotiabank Colpatria’s projection is 0.11% m/m and 5.67% y/y. Food and public services are expected to support the decline in inflation, while the other items would maintain moderate variations.
In the case of monetary policy, the average expectation moved upwards, despite consensus maintaining the expectation of a 75bps cut at October’s meeting. At the last BanRep meeting (September 30th), the bank did not comply with the economists’ expectations of a 75bps cut, cutting the rate by only 50bps, which resulted in a higher rate for the end of the year than anticipated. For the end of 2024, the expectation increased by 25bps, going from 8.75% in September to 9.0% in December, while for the end of 2025, the expectation remains at 6% (chart 2). At Scotiabank Colpatria, the projection is for a 50bps cut in October and a 75bps cut in December to close 2024 at 9.0%, while for 2025 the rate is expected to reach 5.50%.
According to what was stated by the board of directors at its last monetary policy meeting, we believe that the outlook will not change enough to ensure a higher pace of cuts. Fiscal uncertainty would persist for the rest of the month. At the same time, the discussion of the adjustment of the minimum wage for next year begins to generate another uncertain variable that could impact the disinflationary path if a salary increase well above inflation materializes at the end of the year. That said, the majority of the board could continue to advocate for a moderate rate cut, in anticipation of interrupting the easing cycle.
Survey highlights :
- Short-term inflation expectations. For October, the consensus is 0.17% m/m, which would imply an annual inflation rate of 5.73%, lower than the 5.81% in September. The maximum expectation is 0.41% and the minimum is 0.05%. Scotiabank Economics’ projection is 0.11% m/m and 5.67% y/y. Core inflation, excluding food, projected by analysts is 0.17% m/m.
- Medium-term inflation expectations are improving. Inflation expectations for December fell 9bps to 5.47% y/y (table 1). Similarly, expectations for the 1-year horizon fell by 6bps to 4.13%, and the expectation for 2 years by 5bps to 3.44%.
- Monetary policy rate. The median expectation is for a 75bps rate cut at the October 31st meeting, but for December the expectation is for a 50bps cut, a path that is not compatible with the central bank’s traditional approach. For 2025, the end-of-year expectation remains at 6%.
- FX. Projections for the US dollar exchange rate for the end of 2024 averaged 4,125.3 pesos (18 pesos more than the previous survey). For December 2025, respondents, on average, expect an exchange rate of 4,108 pesos.
—Daniela Silva
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.