January 12, 2017 / 1:44 PM / 2 years ago

EMERGING MARKETS-Brazil rate futures narrow on aggressive cenbank cut

SAO PAULO, Jan 12 (Reuters) - Yields on Brazilian interest
rate futures tightened sharply on Thursday after the central
bank cut rates more aggressively than expected to fight a deep
    After markets closed on Wednesday, the central bank reduced
its benchmark Selic overnight lending rate by 75 basis points to
13.00 percent, the lowest in two years. 
    Most traders expected a 50 basis point reduction, after the
bank twice cut the Selic by a moderate 25 basis points despite
the economic rout.
    Before the Wednesday central bank decision, rate futures
indicated a three-quarters chance of a 50 basis point cut and a
one-quarter probability of a larger cut.
    The surprise led traders to increase bets on a deeper
rate-cutting cycle, pricing that the Selic could fall as low as
9.7 percent. On Wednesday, they bet it would fall to 10.25
    Brazilian stocks also rose as traders wagered that lower
interest rates could boost economic activity and lift corporate
    Higher prices of oil and iron ore also boosted shares of
blue-chip oil company Petróleo Brasileiro SA and
miner Vale SA, fanning a rally of the benchmark
Bovespa stock index.
    The Brazilian real strengthened 0.9 percent, tracking
a global pickup in appetite for emerging market assets.
    Many traders had expected U.S. President-elect Donald Trump
would take a strong protectionist stand in his first news
conference after the election and dialed down those bets after
his remarks on Wednesday provided few policy details.
    The Mexican peso, the currency that has been most
affected by Trump's rhetoric, strengthened 1 percent after
hitting a new historic low the day before.
    Key Latin American stock indexes and currencies at 1330 GMT:
 Stock indexes                               daily %    YTD %
                                              change   change
 MSCI Emerging Markets               899.90     1.49     2.84
 MSCI LatAm                         2454.95     3.39     1.44
 Brazil Bovespa                    64124.62     2.69     6.47
 Chile IPSA                         4227.19     0.41     1.83
 Chile IGPA                        21071.78     0.36     1.63
 Currencies                                  daily %    YTD %
                                              change   change
 Brazil real                         3.1637     0.86     2.70
 Mexico peso                        21.6350     1.04    -4.12
 Chile peso                           663.3     1.13     1.12
 Colombia peso                       2920.5     1.64     2.77
 Argentina peso (interbank)         15.8000     0.35     0.47
 Argentina peso (parallel)            16.75     0.60     0.42

 (Reporting by Bruno Federowski)
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