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The air in São Paulo trading rooms this morning is thick with one question: will the Central Bank finally blink in August? The National Monetary Council is meeting even as the unemployment rate is released, creating a noisy backdrop for the final round of positioning before the Copom decision next week. With the Selic stuck at a painful 15.00 per cent, local fund managers are desperate for a clear signal that a cutting cycle can begin, and today’s jobs and inflation data are the last big domestic clues they’ll get.
The wholesale IGP-M inflation index, released at 11:00 BRT, is expected to show a dramatic -1.07 per cent drop, which would be a powerful deflationary headline. However, the Central Bank’s focus is firmly on the job market — a tight labour force is the last bastion of sticky services inflation that has kept the monetary hawks in control. If the jobless rate holds firm or surprisingly drops, the odds of a rate cut in August could evaporate.
This domestic drama will play out against a global tape that is equally tense. The US releases its own quarterly GDP data and the crucial PCE inflation numbers at 12:30 BRT. A hot US inflation reading could prop up the dollar globally, putting immediate pressure on the real and testing the R$5.12 level that has held for days. In this environment, Brazilian equities are likely to stay on a tight leash, with any early gains in cyclical stocks like retailers quickly reined in if the currency wobbles.
