December 22, 2016 / 3:04 PM / 2 years ago

EMERGING MARKETS-Brazil rate futures flat after central bank inflation report

SAO PAULO, Dec 22 (Reuters) - Yields paid on Brazilian
interest rate future contracts were flat on Thursday after the
central bank signaled it would likely accelerate the pace of
rate cuts next month, as widely expected.
    But the bank refrained from providing strong indications
that it could pursue an aggressive 75 basis point cut, leading
some traders to book profits following recent drops.
    In its quarterly inflation report released on Thursday, the
central bank cut its 2017 economic growth estimate and forecast
inflation will remain low in the coming two years. 
    "A more worried, but still cautious, inflation report
reinforces the view for a 50bp cut in January," JPMorgan
economists wrote in a report.
    They pointed out, however, that the report was produced
before the release of surprisingly weak inflation figures on
    "The central bank will leave the doors open to accelerate
even more the pace of easing after January's meeting, especially
if forecasts for inflation continue falling and/or activity
disappoints further," they added.
    Rate future prices <0#2DIJ:> indicated an 84 percent chance
that the central bank will cut its benchmark Selic rate by 50
basis point next month, to 13.25 percent, with a 16 percent
probability of a sharper 75 basis point cut. 
    The bank has twice cut the Selic by 25 basis points despite
a severe recession as inflation remained above the 6.5 percent
top end of its target bend.
    Brazil's benchmark Bovespa stock index fell 0.7
percent, weighed down by falling shares of miner Vale SA
    China steel and iron ore futures slumped more than 4 percent
on Thursday as a smog that engulfed northern cities of the
country this week slowed trading activity. 
    Wider Latin American markets saw thin trading volumes amid
the year-end holiday season. 
    The Mexican peso weakened 1 percent to a three-week
low on lingering concerns over U.S. President-elect Donald
Trump's campaign promises of curtailing trade and financial
flows with Mexico.
    Key Latin American stock indexes and currencies at 1450 GMT:
 Stock indexes                               daily %    YTD %
                                              change   change
 MSCI Emerging Markets               841.43    -1.14     7.18
 MSCI LatAm                         2225.70    -0.94     22.8
 Brazil Bovespa                    57228.88    -0.72    32.02
 Mexico IPC                        44702.94    -0.62     4.01
 Chile IPSA                         4148.45    -0.09    12.72
 Chile IGPA                        20769.74    -0.08    14.42
 Argentina MerVal                  16648.08     0.36    42.59
 Colombia IGBC                     10029.33    -0.11    17.34
 Venezuela IBC                     28021.16    -1.26    92.08
 Currencies                                  daily %    YTD %
                                              change   change
 Brazil real                         3.3254     0.15    18.69
 Mexico peso                        20.7550    -0.95   -16.98
 Chile peso                          674.65    -0.36     5.20
 Colombia peso                         3000    -0.17     5.64
 Peru sol                             3.398    -0.21     0.47
 Argentina peso (interbank)         15.7900     0.00   -17.78
 Argentina peso (parallel)            16.52     0.36   -13.62

 (Reporting by Bruno Federowski; Editing by Meredith Mazzilli)
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