We see the unemployment rate (seasonally adjusted) to recede to 11.7% by YE18, as formal jobs provide a growing contribution.
According to the BCB, the measure has potential to induce a reduction of the cost of credit.
Based on current information, our preliminary forecast for the headline IPCA in March is a 0.13% increase (2.72% yoy).
In Colombia, the front end of the curve narrowed 2-3bps after Banrep Governor Echevarría’s quarterly inflation report presentation.
LatAm pairs posted gains in a risk-on session (+0.97%), as equity markets strong on the green and US Treasuries widened.
Commodity-linked FX posted losses (-0.75%) as the Chinese industrial production surprised to the downside.
The BRL reversed intraday losses and closed at 3.2779/USD (+0.18%) after the resignation of the Brazilian Cities Minister.
Long Brazilian yields widen in tandem with core yields.
A united board leaves rates on hold.
The Chilean curve bear flattened as the CPI came in above the ceiling of market forecasts.
Back from the holiday, the front end of the Colombian curve went down on the back of the below-than-expected CPI figure.
The BRL outperformed the majors, closing at 3.2517/USD (+1.91%).
LatAm currencies weakened 1.12% as the USD strengthened on the back of strong hard data in leading indicators (ISM non-manufacturing and capital goods orders).
The COP was the regional laggard (-0.76% to 3,065/USD – weakest since July) as oil prices posted losses.
The belly of the Brazilian curve narrowed after the Copom minutes as the market reassessed the odds of the easing cycle extending into the new year.
Major central banks will meet this week, apart from the Fed Chair announcement.
The front end of the Colombian curve rallied after Banrep surprised market forecasts by delivering a 25-bp cut to 5.0%.
The USD strengthened across the board (DXY: +0.91%; EM FX: -0.23%) after the US House approved the budget resolution, triggering a sell-off in Latam currencies.
The Copom delivered the expected result, a 75bps rate cut, taking the Selic to 7.5%pa, without a bias.
Mexican rates widened after the bi-weekly core CPI and the GDP proxy (IGAE) surprised to the upside
The Brazilian curve steepened (Jan19x25: +4bps) as the BRL sold off (-1.29% to 3.2354/USD – weakest since July).
In FX, the USD strengthened across the board (DXY: +0.44%) after the US Senate approved a budget resolution on Thursday.
The Brazilian curve bull flattened (Jan19x25: -6bps) as the Lower House CCJ voted to drop charges against President Temer.
Also, DI futures narrowed 1-2bps as the BCB’s activity index came in slightly below consensus.
The MXN (+1.27% to 18.7934/USD) outperformed within the major currencies.
The MXN is depreciating (-0.60% to 19.0257/USD – weakest level since May) amid market concerns over the fate of Nafta.
Mexican rates increased after Banxico’s communiqué.
LatAm yields narrowed on the back of stronger currencies and in tandem with US treasuries.
Liquidity in global markets was thin due to the holiday in the US (Columbus Day).
Mexican assets were under pressure from the increased prospects of fiscal stimulus in the US.
The front end of Andean curves tightened as inflation came in below the floor of expectations both in Chile and Colombia
Despite the weak dollar session, the MXN depreciated 0.31% to 18.2670/USD ahead of the fourth round of Nafta renegotiation in Washington, DC (October 11-15).
In Colombia, yields past the 2-year narrowed after Echevarria’s speech to lawmakers.
LatAm pairs stood well behaved (+0.11%).
US Treasury yields and the USD were lifted on increased market expectations that the US government will be able to push fiscal stimuli.
North Korean Foreign Minister RI Yong Ho warned that Pyongyang has the right to down US aircraft in international airspace.
Mexican yields went down 4-6bps past the 1-year as bi-weekly CPI came in below expectations.
After the 3Q17 Inflation Report (see Macro Backdrop), the entire DI futures curve is now below 10%.
Brazilian yields narrowed as tax collection real growth accelerated (see Macro Backdrop).
Brazilian yields narrowed as Selic expectations for 2018 fell to 7.00%, matching our call.
The BRL (+0.34% to 3.1104/USD) outperformed in LatAm FX (+0.16%) as CDS fell to 180bps (-2bps).
The belly of the Mexican curve widened in tandem with US treasuries (5-year: +2bps to 1.79%).
The belly of the Colombian curve widened (2-year: +2bps to 4.82%).
The rise in core yields pressured local rates.
LatAm pairs (-0.35%) posted losses as the USD gave back recent losses (DXY: +0.67%).
The Brazilian curve bull flattened (Jan19x25: -11bps) after the Copom delivered the final 100-bp cut on Wednesday, September 6.
We changed our year-end call to 7.0%, from 7.25% previously.
LatAm curves shifted downwards as US Treasuries traded substantially lower in the session.
In FX, Andean pairs traded range bound (COP: -0.02% to 2,932/USD; CLP: -0.03% to 624.55/USD).
The Chilean curve bull steepened (1s10s: +7bps) after the minutes of the August monetary policy meeting
Most commodity-linked FX (+0.61%) strengthened as Chinese manufacturing PMI came in stronger than expected.
The MXN (+0.68% to 17.7208/USD) outperformed EM peers as the US 2Q GDP second reading surprised to the upside.
The BRL (+0.07% to 3.1646/USD) and the MXN (+0.16% to 17.8423/USD) erased intraday losses.
The CLP (+1.05% to 628.30/USD) gained on rising copper prices (+1.11%) and falling oil crude.
The belly and the front end of the DI futures curve narrowed on the back of downward electricity tariff adjustments.
Brazilian yields narrowed further amid increased market expectations that the TLP will become the law of the land on time.
The BRL (+0.68% to 3.1415/USD) outperformed within high-beta pairs as the quasi-fiscal reform bill moved to the Lower House floor.
The market is closely monitoring the debate on the TLP (new long-term BNDES benchmark rate) in the joint commission (Lower House and Senate).
In Brazil, the long end of the curve widened and the BRL (-0.57% to 3.1651/USD) weakened on market conjectures over domestic headlines.
LatAm currencies (+0.70%) posted gains on the back of stronger commodities (CRB futures: +0.92%) and the weaker USD (DXY: -0.23%).
We expect further rate cuts to materialize before yearend
The volatility gauge VIX increased to 14.73 from 11.74 as of Wednesday.
Brazilian yields had a muted reaction to the fiscal targets’ change (see Macro Backdrop) announced on Tuesday night.
In Mexico, long rates widened in tandem with Treasuries, after US retail sales surprised to the upside.
NY Fed’s Dudley stated in an interview that he would support another rate hike this year, provided that inflation returns to a moderate pace in the 2H17.
The move itself is not unexpected as the country’s fiscal standing deteriorates, but it does arrive ahead of schedule.
Global stocks still under pressure on heightened tensions in the Pacific region.
Geopolitical concerns in the Pacific region fuel risk aversion in global markets.
Chilean yields widened substantially as inflation came in higher than expectations
Brazilian risk premium outperformed, amid the risk-on mood abroad and the iron ore rally (+3.83%).
LatAm FX (-0.45%) depreciated across the board after strong US payrolls report.
The 5-year Mexican country risk fell to 99bps (-1bp) – below the 100bps level for the first time since December 2014.
After that, the committee is likely to slow down the pace of easing to 50bps per meeting, with the Selic rate ending the year at 7.25%.
The CLP (+0.40% to 651.34/USD) and the BRL (+0.23% to 3.1245/USD) appreciated on the back of stronger metallic commodity prices.
In Chile, the front end of the curve narrowed after BCCh’s minutes.
The Brazilian curve bull steepened (Jan19x25: +14bps) after the BCB’s new guidance.
The Copom delivered the expected outcome, a 100bps rate cut, leading the Selic rate to 9.25% pa.
Ahead of the FOMC, higher core yields pressured long LatAm rates.
Copom Cockpit: the disinflationary scenario prevails.
Brazilian rates narrowed for the fifth straight session after another downward IPCA-15 surprise.
The Brazilian curve bull flattened amid a stronger BRL.
Accordingly, LatAm FX posted widespread gains in the session.
IBR swaps widened after Finance Minister Cardenas’s remarks in an interview.
The USD weakened across the board and the VIX fell back to 24-year lows.
As unanimously expected by market participants, the BCCh left the policy rate at 2.5% at its July meeting.
In Brazil, country risk fell substantially (-7bps to 229bps) after the labor reform was approved in the Senate.
Chilean rates narrowed for the third consecutive session after inflation forecasts for 11 months ahead were revised to the downside.
Long Brazilian yields narrowed as professional forecasters reduced Selic projections for 2017, 2018 and 2019.
The Chilean curve bear steepened as CPI came in below the floor of expectations.
The Mexican curve bear flattened amid the market’s hawkish take on Banxico’s minutes.
In Camara swaps, the 1-year fell 1bp to 2.47% and the 7-year fell 2bps to 3.88%.
Thin liquidity day as US markets were closed due to the independence holiday.
The pair appreciated 0.26% to 662.20/USD.
Short Chilean rates fell on the higher-than-expected unemployment figure, while the long end tracked DM yields higher.
The government introduced an important change in the inflation-targeting framework: from now on, the CPI target will be set three years in advance.
The upbeat performance of commodities lent a helping hand to LatAm FX.
Eonia swaps widened strongly after ECB Chair Draghi hinted at a tapering announcement still this year.
Yields tightened 3-4bps pat the Jan-18, owing to downward revisions to inflation expectations.
Mexican rates kept adjusting to Banxico’s new flight plan.
Mexican yields took the route south after the central bank asserted that the its baseline scenario is not to hike anymore.
The COP ranked the second bottom performer within EMFX, as oil prices kept going down.
The COP weakened 1.89% to 3,033.03/USD, as oil prices tested mid-November lows.
Brazilian rates narrowed substantially, as the consensus revised inflation projections to the downside again.
The DI futures curve bull flattened (Jan18x21: -10bps).
LatAm FX strengthened after soft CPI data in the US, but later staged a correction as the FOMC has not changed its guidance meaningfully.
The MXN is gaining 0.45% to 18.05/USD – level last seen in May 2016.
Brazilian rates fell as IPCA expectations for 2017 considerably fell.
DI futures narrowed substantially as May annual inflation fell to 10-year lows.
The CLP strengthened 0.45% to 666.06/USD on the back of higher copper prices
Oil prices dropped (WTI: -4.94% to USD 45.81/bbl) after the DOE report showed crude supplies unexpectedly rose by 3.3 million barrels last week.
The board seems to reaffirm that the next move, in late July, is more likely a 75-bp cut.
The MXN rallied 1.84% to 18.38/USD, testing levels last seen in mid-September 2016.
LatAm curves took the route south after US labor report showed moderate payroll growth and tame wage pressures.
In DI futures, the Jan-18 widened 14bps to 9.39% and the Jan-25 went up 8bps to 11.04%.
The Copom took the widely expected decision, cutting the Selic to 10.25%, without a bias, in an unanimous version.
DI futures widened after the voting of the labor reform in the economic affairs commission of the Senate was cancelled.
Liquidity was thin in LatAm markets due to holidays in the US, UK and China.
Moody’s changed outlook on Brazil’s Ba2 issuer rating to negative from stable.
Opec together with Russia and other non-members agreed to prolong their accord through March 2018, frustrating market expectations of a more aggressive deal.
The FOMC minutes indicate a rate hike in June.
On Monday (May 22), S&P placed Brazil’s sovereign ‘BB’ long-term foreign and local currency credit ratings on CreditWatch with negative implications.
TIIE swaps widened after 1Q17 GDP came in better-than-expected, beyond the robust flash estimate.
We believe the increased concern with activity will likely lead a majority of the board to favor a second consecutive 50-bp rate cut to 6.00%.
Brazilian rates sold off with DI futures testing the circuit breaks upside limits.
Markets traded in a risk off tone as investors focused on political concerns in the US and the government’s ability to push through its pro-growth agenda.
The Brazilian curve bull flattened (Jan18x21: -5bps) as markets reassessed the terminal Selic rate.
We also forecast another 125-bp cut in July, with the Selic reaching 7.5% by October and staying there until end 2018 (we had a 8.25% terminal rate before).
Treasuries narrowed as US core CPI indicates another soft core PCE print in April.
The DI futures curve implies roughly 117bps in rate cuts for the Copom meeting in May.
DI futures narrowed as articles suggest the government is reaching the necessary votes for the approval of the pension reform in the Lower House floor.
Brazilian yields narrowed as coincident indicators suggest the industrial production weakness will extend into 2Q17.
Metals and grains posted losses as Chinese imports slowed down.
The report is positive for risky assets as the US economy keeps expanding without major wage pressures and the Fed’s can remain gradual.
Local currencies underperformed tracking EMFX (-0.53%) and lower commodity prices (Commodity FX: -1.15%).
For the next Copom, the market is pricing in 114bps in rate cuts. For the remainder of the year, the curve implies roughly 244bps in rate cuts.
The BRL outperformed the majors, as the market had a positive interpretation of government officials’ communication about pension reform.
The MXN ended a volatile week on a high note, buoyed by Moody’s decision to affirm Mexico’s rating and better headlines about North American trade relations.
Long Brazilian yields oscillated up 1-2bps as pension reform concerns lose some steam after the labor reform cleared the Lower House.
Lingering market concerns over the Social Security voting are still hurting the BRL; new market conjectures over North American trade relations hit the MXN.
The BRL depreciated 0.61% to 3.1472/USD. The tender pared the opening losses after the Lower House Special Commission approved the labor reform.
The BRL outperformed its LatAm peers, closing at 3.1279/USD (+0.62%), as France heads towards a Macron-Le Pen run-off.
The front end and the belly narrowed 1-3bps as consumer confidence slipped further into pessimistic territory and also after Co-director Maiguashca interview.
The Mexican Peso registered the largest daily loss in 3 months, depreciating 1.31% to 18.84/USD.
Short DI Futures tightened after the Copom minutes revealed that it considered a more aggressive move than the 100-bp cut that was delivered.
Yet, the BRL was also boosted by signs that the highly awaited presentation, by Social Security reform rapporteur Maia, will come through on Tuesday (April 18).
The move surprised us in a month when the market was divided.
We expect the board to repeat the move in its next meeting, on May 30-31.
Market concerns over the Asian and Middle Eastern geopolitical outlooks prompted a flight to haven.
For the next two meetings (April and May), the curve implies roughly 197bps in rate cuts.
Yields in Brazil narrowed after the soft US Payroll and the confirmation of the lowest 1Q inflation since the Real Plan.
The Brazilian curve bear steepened on market concerns over the Social Security reform.
While consumer confidence posted a timid recovery from historical lows, Mexico’s gross fixed investment declined at the margin.
The BRL (+0.68% to 3.0935/USD) topped its LatAm peers as the market reduced the risk of discontinuity in the fiscal reform effort.
Chilean rates edged lower as February’s retail sales unexpectedly contracted and BCCh lowered its growth forecast range for 2017.
According to BCB governor Goldfajn, the new TLP rate “is consistent with a lower structural interest rate in the medium term”.
The Inflation Report signaled a “moderate” increase in the pace of easing, which we take to mean an increase to 100bps from 75bps.
The MXN outperformed the majors in the session, trading at 18.71/USD (+1.73%) – strongest figure year to date.
Long DI Futures increase as the government delayed the announcement of the budget measures aiming to compensate the fiscal deficit shortfall.
The DI Futures curve bull steepened as long inflation expectations drop below 4.50%.
Cuts larger than 25-bp seem unlikely for now.
In rates, Brazilian bond yields increased in the session on concerns over an inflationary effect of a possible tax increase next week.
In DI Futures, short rates inched down (Oct-17: -1bp to 10.41%) and long rates went up (Jan-19: +4bps to 9.52%).
Metals sold off as iron ore prices fell 3.20% and copper decreased 2.08%.
We see a cut in Friday as a given amid falling inflation and expectations as well as a board more mindful on the activity slowdown.
In our Monthly Strategy Report we argue that the Brazilian nominals have room to compress further.
Brazil registered formal job creation in February for the first time since March 2015.
MXN outperforms as the US wants to use higher rules of origin to "develop a mutually beneficial regional powerhouse".
We expect two cuts of 100bps (in April and May), two cuts of 75bps (in July and September), and one cut of 50bps (in October).
The Brazilian curve tightened as inflation expectations for 2017 went down to 4.19% and Selic expectations for YE17 fell to 9.0%.
The Brazilian curve bull-flattened as February’s inflation came in below the bottom of market estimates.
LatAm curves bear steepened, except for Colombia, on the back of the post-ECB sell-off in DM yields
After strong ADP figure, the market revised to the upside expectations for Friday nonfarm payrolls report
Brazilian rates traded higher in the session, despite disappointing 4Q16 GDP data.
Metals posted losses after the Chinese GDP policy shift to “around 6.5%”.
The Brazilian curve bull flattened on the back of the BRL correction and BCB governor interview.
The BRL was the regional laggard as a Fed’s hike in March is the market’s new base case scenario.
Some profit taking in Brazil before the long holiday (Carnival) and political concerns.
In rates, after the Copom’s 75-bp cut, DI Futures tightened further.
DI Futures tightened further. The curve shifted downwards 7bps, on average.
Risk-on day, with markets adjusting to the prolonged weekend in the US.
Quiet session, with the market operating with thin liquidity amid the US holiday (President’s day).
Brazil is moving to a new equilibrium; so we hold a bullish view on local rates, even though our tools show little mispricing.
The belly of the DI futures curve was pressured following the LTN and NTN-F auction and some profit taking.
The CLP appreciated to 639.08/USD, as BCCh stood on hold on Tuesday's meeting, surprising a considerable part of the market.
Long DI futures halted a 10-day rally and the BRL tested levels last seen on July 2015.
Long NTN-Bs widened substantially , as market debates the odds of a reduction of the CPI target for 2019 as early as June
The BRL reached a year-to-date low of 3.1151/USD, boosted by the rise in iron ore prices.
The Mexican curve bear-flattened (1s10s: -7bps), as Banxico hiked more than implied in the front end.
In Brazil, the DI curve bull-flattened, as inflation came close to the lowest of market expectations.
The Mexican curve fell, overall, roughly 4 bps.
In rates, the DI Futures curve bull-flattened slightly (Jan19x26: -3bps), following the downward revision in inflation expectations.
Brazilian nominal rates staged another rally, echoing the post-payroll risk on mood.
In LatAm FX, Andean pairs staged a late reaction to the FOMC meeting.
EM currencies posted gains, after the FOMC made only marginal adjustments to its near-term outlook.
Governor Goldfajn stated BCB’s decision to roll-over the FX swaps expiring in March (USD 7 billion) will depend on market conditions
The Colombian curve flattened substantially, in a late reaction to Banrep’s hawkish tilt.
Brazilian rates staged a rally, amid a positive external environment and good news on inflation front (cut in gas prices, maintenance of green flag).
The MXN was the regional underperformer (-1.13%), amid growing uncertainties over the U.S.-Mexico trade relationship.
Mexican yields rose 2-3bps past the 5-year; breakevens widened as well, echoing the above expected CPI print.
The preview points to a 3.7% increase in confidence in January, above our expectations (+2.0%).