Halister News

(Bloomberg) -- Even after removing the message that there’s no room for rate cuts, BCB still has a relatively cautious stance, Carlos Kawall, chief economist at Banco Safra and former Treasury Secretary, says in a phone interview.

• 1st Selic rate move still more likely for Nov. 30 BCB decision than the next one on Oct. 19
• Instead of saying they “don’t see conditions” for cuts, BCB message now is that there’s “room depending on some conditions,” Kawall Says
• The main condition among the three cited by BCB for cutting rates is progress on the fiscal agenda; the other two are food and services slowdown
  • While inflation may continue slowing, BCB has highlighted the resilience of prices
  • Fiscal measures such as a spending cap and overhaul of social security are unlikely to be approved in near term
  • Investors may await some sign of reform momentum before betting further on Brazil markets; “the spending cap may be a trigger for optimism should Congress approve a cap without loopholes”
• Greater optimism about Brazil’s market also depends on a

continued low-rate, benign scenario abroad, Kawall says

• NOTE: DI rates drop as BCB statement shift was seen by investors as a door open for cuts this year

(Bloomberg) -- While outcome of FOMC’s Sept. mtg won’t be based on Aug. payrolls alone, “decision is close enough to binary” in bond mkt’s opinion for rates to move that way on Fri., FTN strategist Jim Vogel writes.

• If Aug. payrolls are below 170k, “there will be enough doubt about the Fed’s timetable that yields will ease back to wait for more information”
• Should number be above 170k, Fed “stays in play and bond prices remain on guard”
• “Most likely” outcome is payrolls figure of 175k-225k and unemployment rate of 4.8%-4.9%, 5s between 1.16%-1.22% and 10s between 1.57%-1.62%
• Mkt has spent a mo. gearing up for more aggressive Fed; will take “a lot of convincing” from Aug. data for traders to back away from impression of strong economic growth created by June/July reports

(Bloomberg) -- Strong directionality of Schatz asset-swap spreads with cash yields means the former are vulnerable to a sell-off in Schatz yields should rate-cut expectations wane progressively, Societe Generale strategist Jamal Meliani writes in client note.

• Buy 90 DUZ6 Dec. 2016 puts strike 112 vs sell EUR 10m 2y swaption payers ATMF, expiry Nov. 25
• Risks to trade include any move by ECB to cut rates and/or addr
  • Societe Generale economists looking for ECB to address the issue of bond scarcity mainly by increasing the single issue limit from 33% to 40% or even 50%

(Bloomberg) -- ISM Manufacturing PMI seen at 52 in Aug. vs 52.6 in July (forecast range 50.7 to 53.4); readings above 50 signal growth, below 50 contraction.

• Construction spending seen rising 0.5% in July after declining 0.6% in June (forecast range -0.4% to +1.2%); based on value of residential and non-residential projects