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SocGen Says Improvement In Global Financial Conditions Key For Bullish Bets

LATAM
  • SocGen believe that improved global financial conditions are needed for markets to embark on bullish bets on the FX and receiving rates. However, local policy risk and fiscal concerns need to be addressed in the near term.
    • In Mexico, there were mixed views on the push to pass radical reforms, but most expect the new administration to preserve macro stability. The MXN was seen as cheap, with the recent sell-off driven by positioning, while fundamentals remain intact. There was appetite for receiving rates, especially front-end, but caution prevails for now pending clarity on the policy path.
    • In Brazil, concerns focused on the fiscal, but few expect further deterioration. Locals are cautious on BRL, but it was perceived to be cheap, with fiscal action, especially spending cuts, needed to drive a recovery towards the 5.00 handle. On rates, value is seen in the swap curve, especially 2y+, with the BCB seen on hold, perhaps until Q4. October municipal elections are a risk.
    • In Chile, the BCCh is seen cutting by 25bp tonight and to keep cutting this year, although there were some concerns about electricity tariff hikes in H2. The range for the terminal rate is seen at 4.5-5.25%, perhaps reached in H125, but the monetary policy path is seen as priced. On the CLP, low carry and volatile copper prices should keep the peso vulnerable near term.
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