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Back Above $1,800/oz


Customs Trade Data Eyed


Treasury Statement Re: Yellen-Liu Call

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  • They write that the central bank's reaction function was more aggressive than they had expected and amid their call for combined supply- and demand-side pressures on inflation to worsen in coming months, MS now see the BCCh taking rates to 6.00% by mid-2022.
  • Besides inflation prints and expectations surveys (they think watching 2-year ahead expectations is key), the 4th AFP withdrawal bill in Congress is an important signpost for the monetary policy outlook: if it passes, markets could see rates as high as 6.75% by mid-2022, including further acceleration in the pace of hikes over the next few decisions.
  • They still expect policy uncertainty into the November election to push additional risk premia in longer tenors but it will likely continue to feed through to the real rate curve.
  • In FX, the stronger messaging could provide some support for the currency in the near term. More specifically, MS think that CLP could outperform other currencies with similar exposure to China (e.g., KRW), or G10 currencies with more dovish central banks (e.g., EUR).