July 24, 2017 / 5:03 PM / a year ago

EMERGING MARKETS-Brazil short-term rate future yields slip awaiting c.bank decision

    By Bruno Federowski
    SAO PAULO, July 24 (Reuters) - Yields on short-term
Brazilian interest rate futures slipped on Monday on bets that
the central bank will cut rates aggressively this week despite
signaling that it could slow the pace of easing.
    Several economists last week revised their forecasts for
Brazil's benchmark Selic rate to account for a
faster-than-expected drop in inflation as a slow economic
recovery kept a lid on prices.
    JPMorgan now expects the central bank to cut rates by 100
basis points when it announces its decision on Wednesday to 9.25
percent, with the benchmark rate hitting 8 percent by October.
    In its last policy statement, the bank warned it could slow
the pace of cuts from a current 100 basis points per meeting due
to growing political turmoil, driving many investors to bet on a
smaller 75 basis-point reduction in July.
    Those bets lost steam after Congress approved a revamp of
the country's labor laws by a wide margin, suggesting resilient
lawmaker support for President Michel Temer's reform platform
despite corruption allegations against him.
    Analysts and traders said the future path of interest rates
will hinge on the approval of other reforms needed to curb
growth of public debt.
    "It is yet to be seen how the central bank will approach the
pension reform paralysis," CM Capital Markets economist Camila
Abdelmalack said, referring to successive delays to Temer's
plans to streamline the country's social security system.
    Reforms are also key to extend the Brazilian real's rally as
it looks set to post the biggest gain among Latin American
currencies this month, traders said.
    The currency seesawed on Monday, hovering near 3.15
reais to the greenback. In a Monday note to clients, strategists
at BNP Paribas recommended clients purchase the real, betting
that it will breach the 3.00 threshold by the end of the year.
    Most other Latin American currencies weakened, struggling to
extend this month's gains following stronger-than-expected U.S.
manufacturing and services data.
    The Mexican peso slipped 0.8 percent, while the
Chilean peso traded nearly flat, finding support in
higher copper prices. 
    Emerging market currencies mostly firmed in July as a batch
of weak U.S. economic figures boosted bets that the U.S. Federal
Reserve will raise rates at a slower pace than expected,
fostering demand for risky assets.
    Key Latin American stock indexes and currencies at 1640 GMT:
 Stock indexes                                daily %    YTD %
                                     Latest    change   change
 MSCI Emerging Markets               1059.69     0.03    22.86
 MSCI LatAm                          2731.91    -0.14    16.88
 Brazil Bovespa                     64671.04    -0.41     7.38
 Mexico S&P/BVM IPC                 51576.80     0.85    13.00
 Chile IPSA                          5032.94    -0.04    21.24
 Chile IGPA                         25135.79    -0.05    21.23
 Argentina MerVal                   21619.14     0.72    27.79
 Colombia IGBC                      10868.65    -0.11     7.31
 Venezuela IBC                     132529.27     0.92   318.00
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          3.1359    -0.31     3.61
 Mexico peso                         17.6220    -0.78    17.72
 Chile peso                            651.5     0.02     2.95
 Colombia peso                          3011    -0.50    -0.32
 Peru sol                              3.249    -0.25     5.08
 Argentina peso (interbank)          17.4000    -1.03    -8.76
 Argentina peso (parallel)              17.9    -0.34    -6.03
 (Reporting by Bruno Federowski; Additional reporting by Claudia
Violante; Editing by Tom Brown)
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