March 23, 2018 / 12:32 AM / 5 months ago

EMERGING MARKETS-Brazil central bank surprises market with rate signal

 (Adds final prices, details from the region)
    By Bruno Federowski
    SAO PAULO, March 22 (Reuters) - Yields on Brazilian interest
rate futures dropped on Thursday after the central bank
unexpectedly indicated it will continue cutting interest rates,
while fears of a U.S. trade war with China helped put pressure
on Latin American markets.
    The bank on Wednesday reduced the benchmark Selic rate by 25
basis points to an all-time low of 6.50 percent, as widely
expected.
    But policymakers were explicit in forecasting another cut at
their May meeting, contradicting the consensus that this week
would mark the end of the deepest easing cycle in a decade.
After that, unless conditions change radically, it would stand
pat, according to a policy statement.
    Yields on rate futures fell sharply as traders adjusted
their bets.
    "Unless the Brazilian real comes under pressure for domestic
or external reasons, the central bank will be in no hurry to
begin the tightening cycle," economists at Societe Generale
wrote in a report.
    The real weakened over 1 percent on concerns that
lower rates could dampen demand for Brazilian assets. It was the
biggest loser among Latin American currencies, which suffered
the effect of growing fears of U.S. protectionism.
    Brazil's stock exchange, however, fell only 0.25
percent, as shares of steelmakers jumped after the United States
government suspended a tariff hike on Brazilian steel and
aluminum imports as it begins bilateral negotiations.
    Stock markets were down across Latin America after U.S.
President Donald Trump launched anti-China tariffs, helping to
push down the Mexican peso by more than 1 percent.
    Still, Argentina's peso rose after another intervention in
the market by the central bank to support the currency.
    In Peru, the sol rose to its highest level in
almost two months on news Vice President Martin Vizcarra would
take power following the resignation on Wednesday of President
Juan Pablo Kuczynski in the face of near-certain impeachment.
    Latin American stock indexes and currencies at 2330 GMT:
    
 Stock indexes                    Latest       Daily     YTD
                                                 pct     pct
                                              change  change
 MSCI Emerging Markets             1,196.73    -1.07     3.3
 MSCI LatAm                        3,029.01    -0.62     7.1
 Brazil Bovespa                   84,767.88    -0.25   10.95
 Mexico IPC                       47,342.78    -0.34   -4.04
 Chile IPSA                        5,515.99    -0.35   -0.87
 Chile IGPA                       27,661.66    -0.32   -1.14
 Argentina MerVal                 31,908.22    -1.43    6.13
 Colombia IGBC                    11,439.71    -1.73    0.61
                                                            
 Currencies                          Latest    Daily     YTD
                                                 pct     pct
                                              change  change
 Brazil real                         3.3099    -1.27    0.10
 Mexico peso                         18.641    -1.09    5.68
 Chile peso                          607.50    -0.33    1.18
 Colombia peso                        2,860    -0.18    4.27
 Peru sol                             3.236     0.46    0.03
 Argentina peso (interbank)         20.2250     0.25   -8.02
                                                      
 Argentina peso (parallel)            21.03     0.38   -8.56
                                                      
 

 (Reporting by Bruno Federowski; Editing by James Dalgleish and
Grant McCool)
  
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