Brazilian Selic Cut Probabilty 95% as Election Premium Fades
Market expectations for a Brazilian rate cut have surged to 95% ahead of the election, while US investors face higher odds of an interest rate increase as inflation data approaches.
The Brazilian Ibovespa opened Friday trading with anticipation for upcoming inflation reports from both Brazil and the United States. In Brazil, the Selective Rate on Deposits (Selic) currently stands at 14% annually. Recent market activity shows a distinct shift driven by election outcomes. Institutional managers, such as those at Tivio Capital, note that recent price drops in government bonds were fueled by diminishing election risk premiums rather than fundamental economic improvements or institutional buying returns. Isabela Fukase and Huang Seen from Tivio observed that the initial relief occurred as polls narrowed, leading traders to adjust their positions anticipating a concluded electoral battle. Consequently, data options indicate a 95% probability that Copom will cut the Selic by 0.25 percentage points, reversing the recent trend where rates hit lows not seen since May. Meanwhile, in the United States, futures markets project a 73.1% chance the Federal Reserve will raise interest rates by 0.25 percentage points in September. The market is currently weighing two key indicators: the US CPI expected to rise 0.4% monthly and 3.4% annually, and the Brazilian IPCA. Sector performance varies; while European travel and leisure stocks gained, Oracle shares surged due to faster-than-expected cloud business growth. In contrast, US oil prices fell over 2%, relieving pressure on global assets. The Dow Jones futures index is projected to decline 2.5% this week.
