Bank of England hikes on oil; Banxico's call lands at 1pm

Good morning!

The Bank of England opened the day with a jolt: it raised the Bank Rate to 4.00% from 3.75%, its first hike since 2023. Governor Andrew Bailey pinned it on the energy shock from the US-Iran war (exact level and vote split still to confirm against the official statement).

A central bank tightening because of oil

A developed-market central bank hiking into a slowdown tells you what matters today: the US-Iran conflict has turned into supply-side inflation the market can no longer wave off.

Crude agrees: WTI +1.82% to 89.72, with gold +1.42% at 4,131. That backdrop keeps the tape defensive. MOVE at 90.83 flags stress in Treasuries, the 10Y pushed toward 4.90%, and Bitcoin is off 1.40%. VIX at 16.79 is the only gauge not flashing stress.

The peso that refuses to crack

With that setup the currency should be bleeding. It isn't. It opens at 18.5879, below Monday's 18.72 and Friday's 18.79 FIX. The 20-day correlation between the peso and the US 10Y sits at -0.40: it firms while US yields climb, the opposite of the textbook.

The cushion is carry — 2.62pp over the Fed — plus specs still net long the peso (CFTC through Oct 27, +3,820 contracts on the week; Tuesday's snapshot, with the usual lag). I'm uneasy holding the currency with the tape defensive and a war bidding up crude: it's a bet that the rate premium absorbs a supply shock, and that bet doesn't always pay.

Banxico at 1pm, the local judge

Banxico decides at 13:00 Mexico City. It hasn't printed yet, so I treat it as pending. With supply-side inflation as the fresh threat, consensus is an extended hold at 6.50%, and a cautious tone there would defend the differential propping the peso up.

My read: I lean with the peso while the pair holds below the 18.72-18.79 zone that capped the recent highs. I drop the bias if the energy shock forces a daily close above 18.80.

The Risk On index at 47/100 (DEFENSIVE) lines up with crude, gold and the MOVE rising together.

The judge arrives at 1pm; until then, the rate gap is all that holds the peso up.

— See you tomorrow for Friday's view.