Brazil Yields Fall Ahead of BCB Meeting

Brazil's 10-year government bond yield fell to 14.56% from a nearly three-month high of 15% reached in late July as easing tensions in the Middle East pushed oil prices lower, reducing inflation concerns. Iran signaled progress in negotiations to restore shipping through the Strait of Hormuz after US President Donald Trump called off a planned strike, raising hopes for a diplomatic resolution. The decline in oil prices reinforced expectations that the BCB will cut the Selic rate from 14.25% at its August 5th meeting. The latest Focus Survey lowered the 2026 inflation forecast to 5.03% from 5.12% and reduced the year-end Selic projection to 13.75% from 14.00%. Meanwhile, consumer prices rose just 0.06% in the month to mid-July, slowing sharply from 0.41% in June and below forecasts of 0.2%.

The Ibovespa closed flat at 178,000 on Monday as losses in heavyweight commodity stocks offset optimism over easing Middle East tensions. Iran signaled progress in negotiations to restore shipping through the Strait of Hormuz after US President Donald Trump called off a planned strike on the country. The prospect of a diplomatic solution pushed oil prices lower, easing inflation concerns and driving bond yields down. The favorable backdrop reinforced expectations that the BCB will cut the Selic rate this week from the current 14.25%. Financials advanced, with Itaú and Bradesco rising 0.6%, while utilities also gained, with Axia up 1.4%. Also, Embraer climbed 3.1% after BNDES approved R$3.3-3.7 billion in financing to support exports of up to 19 aircraft to Canada's Porter Aviation Holdings. However, Petrobras (-0.8%) and Vale (-2.1%) weighed on the index as oil and iron ore prices declined.

The Ibovespa fluctuated around the 177,000 level on Monday as renewed hopes for a Middle East peace agreement weighed on energy commodity prices. Oil fell after US President Donald Trump canceled a planned military strike on Iran and announced new negotiations with Tehran, sending Petrobras down more than 2%. Vale also lost nearly 1% as iron ore prices declined. Financial stocks outperformed on easing inflation concerns, with Itaú and Bradesco gaining around 0.5%. BB Seguridade also rose 0.5% ahead of its earnings release. The BCB Focus Survey lowered its 2026 inflation forecast to 5.03% from 5.12% and cut its year-end Selic projection to 13.75% from 14.00%, reinforcing expectations of a less restrictive monetary policy. Elsewhere, Embraer climbed more than 2.5% after BNDES approved R$3.3-3.7 billion in financing to support exports of up to 19 aircraft to Canada's Porter Aviation Holdings.