• Real jumps to 11-month high on outlook for global liquidity
  • Swaps climb as BCB sees no room to ease monetary policy

Brazil’s real led gains among major currencies and stocks rallied on speculation that low interest rates in developed economies will boost the appetite for riskier assets. Swap contracts rose on signs borrowing costs will remain at a decade high.

The currency strengthened 2.7 percent to 3.3032 per dollar on Tuesday, reaching the highest in 11 months. The Ibovespa rebounded from the worst two-day tumble since March and advanced 1.6 percent to 50,006.56, led by oil producer Petroleo Brasileiro SA and lender Itau Unibanco Holding SA. Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose the most in almost three months to 12.68 percent.

Brazilian assets followed gains in emerging markets as the diminished likelihood of an increase in U.S. interest rates eased concern about the aftermath of the U.K.’s decision to exit the European Union. Central banks and governments from South Korea to Italy have rushed to defend their economies with stimulus packages and support for banks after $3.6 trillion was wiped off the value of global equities since Britain’s referendum. Yet in Brazil, policy makers said in their quarterly inflation report there is no room to ease borrowing costs before budget cuts are in place.

“Brazil is very dependent on the international economic prospects, so it’s very positive that the tension has eased,” said Jason Vieira, the chief economist at Infinity Asset Management in Sao Paulo. “Investors now may pay a little more attention to the domestic prospects.”

Both the real and the Ibovespa have led global gains this year on speculation that Acting President Michel Temer will be able to pull Latin America’s largest economy out of the worst recession in a century. Inflation is seen slowing below the official target of 4.5 percent only in the first quarter of 2018, underscoring the challenges that lie ahead for new central bank chief Ilan Goldfajn and Finance Minister Henrique Meirelles, who has assembled what Goldman Sachs Group Inc. called a “dream team” of economic experts.

All but one of the 10 groups in the MSCI Brazil index climbed on Tuesday, as commodity shares surged. Petrobras, as the state-run company is known, jumped 4.8 percent. Vale SA, the world’s largest iron-ore producer, gained after Morgan Stanley raised its outlook for the material, saying that the top suppliers in Australia are managing the addition of new supply and steel demand in China will remain supported.

“Risk aversion and the global selloff have eased and commodities are up,” said Mauricio Oreng, a senior strategist at Rabobank in Sao Paulo. "The fact that the central bank is in no hurry to cut rates might also help."

Itau led a rally in financial companies, which had tumbled during a selloff that wiped out 2 billion reais ($600 million) in two days from the Ibovespa.

Pharmaceutical company Hypermarcas SA was the worst performer on the index after the company disclosed in a regulatory filing that a former executive reportedly involved in a government corruption probe had authorized irregular payments.

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