Yields on most Brazilian interest- rate futures contracts fell after jobless claims in the U.S. unexpectedly rose, overshadowing a surge in domestic retail sales and damping bets that a recovery in the world’s largest economy would fuel inflation and limit rate cuts.
Yields on the futures contract due in January 2016 fell three basis points, or 0.03 percentage point, to 11.07 percent at 12:42 p.m. in Sao Paulo, after earlier rising as much as four basis points. The real rose for a third day in four, gaining 0.9 percent to 1.7866 per U.S. dollar, from 1.8025 yesterday.
Futures yields pared increases after more Americans than forecast filed applications for unemployment benefits last week, damping global growth optimism. Yields also fell on a newspaper report that Brazilian President Dilma Rousseff may cut the 2012 budget by as much as 70 billion reais ($39.2 billion) early next week as part of a plan to ensure the central bank will continue to reduce interest rates, according to Vladimir Caramaschi, chief economist of Credit Agricole’s Brazilian unit.
The jobless figures “were a splash of cold water on the optimism in the market,” Caramaschi said in a telephone interview. The budget news “just anticipates spending cuts that are expected to happen.”
Rousseff estimates the benchmark interest rate may be reduced to 10.5 percent from 11 percent next week if the government shows its commitment to the 2012 fiscal target, Brasilia-based Correio Braziliense reported today, without saying how it obtained the information. Rousseff’s team sees room for borrowing costs to be lowered to 9 percent this year, the newspaper said.
The Finance Ministry declined to comment in an e-mailed statement.
Policy makers have cut the benchmark lending rate 150 basis points since August to 11 percent to shore up the economy. Traders are wagering the central bank will reduce the Selic rate to as low as 10 percent by May, interest-rate futures contracts show.
The budget report overshadowed data showing Brazil’s November retail sales rose 1.3 percent from October, surpassing the 0.4 percent median estimate of 29 analysts surveyed by Bloomberg. A 6.8 percent jump from a year earlier also exceeded estimates.
“An increase was already expected, but the pace of gains was stronger than anticipated,” Mauricio Nakahodo, senior economist at CM Capital Markets, said by phone from Sao Paulo.
The real gained with most other major and emerging-market currencies after Spain and Italy completed successful debt auctions and inflation in China cooled to a 15-month low, strengthening speculation the government will take steps to boost the economic growth of Brazil’s biggest trading partner.
“With the drop in inflation, there could be a reduction of reserve requirements in China,” Nakahodo said.
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