January 10, 2018 / 4:34 PM / in a year

EMERGING MARKETS-Short-term Brazilian yields up on inflation data

    By Bruno Federowski
    SAO PAULO, Jan 10 (Reuters) - Yields on short-term Brazilian
interest rate futures inched up on Wednesday as
higher-than-expected inflation data for 2017 drove traders to
trim bets on two additional interest rate cuts.
    The benchmark IPCA index for last year rose more than the
highest forecast in a Reuters poll of economists, though it
still missed the official target range for the first time ever.

    Short-term yields rose in the wake of the report as traders
dialed back bets that the central bank would pursue two further
cuts of 25 basis points in the Selic rate. Rate futures now
price only one such cut in February, which would take rates to
6.75 percent.
    Brazil's central bank has cut rates by a total of 725 basis
points since late 2016.
    Price pressures have been muted for months in Brazil, curbed
by double-digit unemployment despite an acceleration in economic
growth. That may allow the central bank to keep rates at
all-time lows for a long time, bolstering the economy's
    Nevertheless, the benchmark Bovespa stock index fell
0.5 percent, extending losses for a second day as traders booked
profits from a rally early in the year that took it to all-time
    Shares in logistics firm Rumo SA dropped 1.1
percent after UBS analysts downgraded their recommendation on
the stock to "neutral" and cut the price target to 14.40 reais
from 14.60 reais.
    Most Latin American currencies were flat as traders awaited
U.S. inflation figures scheduled to be published later this
week. That data will provide a further clue to the pace of U.S.
interest rate hikes in the coming months. 
    Demand for emerging markets assets took a hit on Wednesday
on a report that China was ready to slow or halt its purchases
of U.S. Treasuries, which could push up interest rates in
developed economies.
    Officials reviewing China's foreign-exchange holdings have
recommended slowing or halting purchases of U.S. Treasuries,
Bloomberg News reported, citing people familiar with the matter.

    Key Latin American stock indexes and currencies at 1720 GMT:
 Stock indexes                              daily %   YTD %
                                             change  change
 MSCI Emerging Markets             1198.27    -0.57    4.03
 MSCI LatAm                        2942.97    -0.35    4.43
 Brazil Bovespa                   78548.15     -0.4    2.81
 Mexico IPC                       49183.67    -1.04   -0.35
 Chile IPSA                        5682.66    -0.48    2.12
 Chile IGPA                       28589.84    -0.45    2.18
 Argentina MerVal                 31695.54    -1.38    5.42
 Colombia IGBC                    11907.72     0.21    4.72
 Currencies                                 daily %   YTD %
                                             change  change
 Brazil real                        3.2389     0.21    2.30
 Mexico peso                       19.2300     0.03    2.44
 Chile peso                         609.26    -0.21    0.88
 Colombia peso                      2889.6     0.63    3.20
 Peru sol                            3.218     0.00    0.59
 Argentina peso (interbank)        18.7300     1.25   -0.69
 Argentina peso (parallel)           19.33     1.09   -0.52
 (Reporting by Bruno Federowski; Editing by Paul Simao)
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