Commodities: Mexican Stocks End Lower, Peso Weakens on Oil Prices — Market Talk

1639 ET – The benchmark IPC index closes down 1% at 46,973 points, while the Mexican peso weakens for a second consecutive session and oil prices retreat after US crude oil inventories fell sharply in the past week. America Movil gains 0.2%, while bread-maker Bimbo falls 2%. The peso closed in Mexico City at 18.8670 to the dollar vs 18.7750 late Tuesday. The Mexican currency has been pressured in recent days as US tax-cut plans progress in Washington. ([email protected])

1615 ET – The Aussie dollar is ground back down to 0.7560 in New York as the risk-off tone to markets saw USD appreciate. ANZ says AUD is likely to trade on global risk factors in the session ahead. The US government continues to debate tax reform, the Brexit debate is getting heated and German coalition talks are ongoing. The US president’s stance on Jerusalem also raises political risk, ANZ adds. ([email protected]; @JamesGlynnWSJ)

1548 ET – Brazil’s central bank is calling for a reduction in the pace of its year-long rate-cutting cycle. After trimming its Selic benchmark rate to 7% –a record low– from 7.5% today, the bank said that, if all goes as it expects, a lower cut would be warranted. Based on Brazil’s monetary policy habits, that assessment implies a quarter of a percentage point cut in February, taking the Selic to 6.25%. ([email protected]; @ptrevisani)

1533 ET – Mexican consumer confidence rose 1% in November from the previous month, mostly as consumers felt better able to buy big-ticket items. The “Buen Fin” Black Friday-style event Nov 17-20 probably helped lift confidence, along with relative stability last month in the peso against the US dollar and in gasoline prices, says Banorte, but adds that high inflation remains a possible obstacle to further gains in confidence. The National Statistics Institute’s confidence index was up 5.7% from November 2016. ([email protected])

Sal. Oppenheim expects the US dollar to strengthen versus the euro next year, taking EUR/USD towards 1.12 in the next 12 months, says Lars Edler, co-chief investment officer at Sal. Oppenheim. The headline of a Market Talk published at 1334 GMT incorrectly said the EUR/USD could rise toward 1.12, rather than fall to that level.

1304 ET – Bank of Nova Scotia economist Derek Holt tells clients the uncertainty over Nafta is weighing heavily on Bank of Canada policymakers, and perhaps moreso than Wednesday’s rate-policy decision is letting on. BoC remains on hold when it comes to rates, Holt says, and is more mindful of the tenuous state of Nafta talks relative to economic data. Holt says BoC is likely more focused on the risk of raising rates based on economic data, only to find out later Trump makes good on his threat to begin the Nafta withdrawal process. “There is obviously a limit to the point to which monetary policy can be put on hold by never ending uncertainties, but I simply don’t buy that the data is screaming out that this limit is being breached now,” Holt tells clients. ([email protected], @paulvieira)

1156 ET – After reviewing Bank of Canada’s latest rate decision, forecasting firm Capital Economics declares the central bank’s interest-rate hike cycle is over, and maintains BoC may have to reverse course and cut its policy rate in the second half of 2018. “Its cautious policy statement indicates that, in contrast to the market view, it is in no hurry to raise rates again soon,” says the firm, a longtime bear on Canada. The firm says markets are overestimating Canada growth prospects in 2018, because the Canadian economy depends “heavily” on inflated home values, household borrowing and housing investment. Real-estate activity is expected to slow in 2018, due in part to new mortgage-financing rules set to kick in starting in January. ([email protected]; @paulvieira)

1119 ET – Potential for USD/JPY in 2018 is likely to be limited, according to Rabobank. “Looking ahead, we don’t see much reason to significantly alter our forecast for USD/JPY into 2018,” Rabobank says, forecasting a USD/JPY range of between 110 and 116 on a 12-month view. If geopolitical tensions rise, a move toward safe haven currencies could trigger USD/JPY moving down to 110. And if these are absent, carry trades may push USD/JPY to 116, since the Federal Reserve is tightening and the Bank of Japan isn’t like to do so yet. USD/JPY is down 0.3% at 112.2520. ([email protected]; @OlgaCotaga)

1033 ET – Leverage can be a good warning signal ahead of U.S. corporate bond losses, but investors should make sure to pick the right metric. The net debt-to-Ebitda ratio will never signal a warning, according to Societe Generale strategists. “[Net debt-to-Ebitda] coincides with spreads going wider but it doesn’t give you much advance warning,” says credit strategist Juan Valencia. On the other hand, debt-to-assets does give advanced warning and already raises red flags for U.S. credit. ([email protected]; @tasosvos)

1032 ET – The Bank of Canada may have said higher rates are likely required, but does not “mean that we’ll see more than 50 basis points total next year,” says Avery Shenfeld, chief economist at CIBC World Markets, in his initial reaction to BoC’s rate decision. He said the statement does acknowledge the upside surprise on the job front, the rebound in exports in October, and added a phrase citing “diminishing” labor-market slack. Still, Shenfeld said, BoC “didn’t offer a clarion call on just how long they will be waiting and seeing before raising rates again.” In WSJ survey this week, Shenfeld predicted next rate rise would be in April. ([email protected]; @paulvieira)

1030 ET – The Canadian dollar falls after a cautious Bank of Canada keeps the interest rate on hold at 1%. USD/CAD had risen to a five-day high of 1.2773 from 1.2663 before the announcement. Though “higher interest rates will likely be required over time,” the central bank said it will probably maintain the rate for some time to assess the economy’s sensitivity, which have been unexpectedly increased twice this year. The BOC also said that “inflation has been slightly higher than anticipated.” A stronger CAD would increase inflation further, which likely won’t be welcomed by the BOC. ([email protected]; @OlgaCotaga)

1026 ET – Potentially lower tax deductibility in the U.S. will make debt a more expensive source of capital for U.S. corporates and could encourage debt issuance in more favorable jurisdictions, says Andrey Kuznetsov, portfolio manager at Hermes Investment Management. This could boost the volume of so-called reverse Yankees, bonds issued by U.S. companies in currencies other than dollars. Proposed U.S. tax changes are currently going through the legislative process. ([email protected]; @tasosvos)

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