July 21, 2016 / 3:17 PM / 2 years ago

EMERGING MARKETS-Yields on Brazil rate futures jump as central bank stands pat

By Bruno Federowski
    SAO PAULO, July 21 (Reuters) - Yields paid on short-term
interest rate future contracts in Brazil rose sharply on
Thursday as traders increased bets that the country's central
bank will wait until at least October to loosen policy.
    The bank kept rates untouched at a nearly 10-year high of
14.25 percent on Wednesday, announcing the decision in a
statement longer than the two-paragraph document investors grew
used to. 
    At the end of the first policy meeting chaired by new
governor Ilan Goldfajn, the central bank said its 2017 inflation
forecast dropped to its target of around 4.5 percent.
    But it also warned of lingering risks to reaching that goal,
such as a recent uptick in inflation due to rising food prices.
Annual inflation rose faster than expected in mid-July, official
data showed on Thursday. 
    Economists with UBS pushed their forecasts for an interest
rate cut back to October from August following the central bank
    The statement "indicated that although the monetary
authority recognizes the progress made in fighting inflation,
its base case and the balance of risks to inflation do not allow
for monetary easing at this point," UBS wrote in a client note.
    Prices of interest rates future contracts indicated traders
were betting on a 25 basis-point cut in Brazil's benchmark rate
in October, compared to a 50 basis-point reduction the previous
day, traders said.
    Other financial markets in the region were mixed. Brazil's
Bovespa stock index seesawed as a rise in shares of
miners and steelmakers outweighed weakness in the financial
    Shares of real estate company JHSF Participações SA
, which are not part of the index, soared 20 percent,
their biggest daily gain in six years.
    A local newspaper reported on Thursday Blackstone Group LP
, the world's largest alternative asset manager, has
started talks to acquire a 50 percent stake in JHSF's shopping
mall portfolio, which is valued at over 2 billion reais ($614
    Most Latin American currencies were slightly stronger as
investors digested comments by the European Central Bank that
left the door open to more policy stimulus. 
    Key Latin American stock indexes and currencies at 1505 GMT:
 Stock indexes                                  daily   YTD %
                                      Latest        %  change
 MSCI Emerging Markets                 871.11    0.04    9.65
 MSCI LatAm                           2395.48   -0.18   31.15
 Brazil Bovespa                      56690.55     0.2   30.77
 Mexico IPC                          47549.41    0.09   10.64
 Chile IPSA                           4104.23   -0.11   11.52
 Chile IGPA                          20255.89   -0.09   11.59
 Argentina MerVal                    16014.91    0.52   37.17
 Colombia IGBC                        9904.82   -0.26   15.88
 Currencies                                     daily   YTD %
                                                    %  change
                                       Latest  change  
 Brazil real                           3.2545   -0.21   21.28
 Mexico peso                          18.5675    0.61   -7.20
 Chile peso                             648.5    0.34    9.44
 Colombia peso                         2927.4   -0.08    8.26
 Peru sol                               3.321   -0.30    2.80
 Argentina peso (interbank)           15.0600    0.13  -13.79
 Argentina peso (parallel)              15.25    0.79   -6.43

 (Reporting by Bruno Federowski; Editing by Meredith Mazzilli)
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