Brazil's 10-year government bond yield rose above 14.75% in late July from 14.54% earlier in the month, amid the outlook of higher interest rates and the outlook of greater bond supply. Oil, natural gas, soybeans, and power prices rose on the wholesale market as new strikes between Iran and the US tempered hopes that energy supply from the Middle East would restart. The developments supported an outlook that inflation could regain traction and prevent the Brazilian central bank from easing rates in the upcoming quarters, lifting yields domestically. Meanwhile, signals of higher deficit spending from the federal government added to a deteriorating fiscal situation. The latest data showed that the nominal budget deficit widened more than expected to BRL 164 billion. Consistently, government revenues were hampered by fresh tariffs from the United States.

Brazil 10-Year Bond Yield Moves Higher

The Brazilian real strengthened to 5.06 per USD in July, the highest in seven weeks, on renewed carry-trade interest. Strikes between the US and Iran escalated and US officials downplayed the chances of diplomacy, increasing geopolitical concern and driving emerging-market investors to momentarily pivot away from the dollar. The high real interest rates by the Central Bank of Brazil made Brazilian real assets attractive among investors, as risks of high inflation and wide deficit spending by Brasilia drove the Selic rate to remain elevated. Still, foreign trade remains a key concern. Investors are awaiting measures from the government to mitigate the impact of new US tariffs. However, key exports including beef, coffee, rare earths, energy products, aircraft, and aircraft parts are exempt from the new 25% tariff.

Brazilian Real Strengthens on Carry Trade

Brent oil futures rose up to a six-week high of $94.4 on Wednesday before easing to $94 as markets assessed the threat that a blockade of Middle Eastern oil will have on global supply. Strikes between the US and Iran continued to halt oil and fuel exports from the GCC. US Secretary of State Rubio accused Iran of failing to honor previous commitments and emphasized that any future agreement must guarantee freedom of navigation through the Strait of Hormuz and prevent Iran from developing nuclear weapons or supporting militant groups. Also, threats from Yemen’s Houthi rebels against shipping routes in the Red Sea increased fears of further disruptions to international oil trade. On top of that, attacks on the Caspian Pipeline Consortium terminal in the Black Sea added pressure on global energy markets. Still, data from the EIA showed that crude oil stocks unexpectedly rose by 1.4 million barrels last week, contrasting with expectations of a draw.

Brent Crude Holds Advance

Crude oil futures eased below $86.5 per barrel on Wednesday from the six-week high of $88.6 earlier in the session as higher inventories momentarily offset lower supply from the Middle East war. Data from the EIA showed that crude oil stocks unexpectedly rose by 1.4 million barrels last week, contrasting with expectations of a draw. Still, the escalatory war between the US and Iran continued to halt oil and fuel exports from the GCC. US Secretary of State Rubio accused Iran of failing to honor previous commitments and emphasized that any future agreement must guarantee freedom of navigation through the Strait of Hormuz and prevent Iran from developing nuclear weapons or supporting militant groups. Also, threats from Yemen’s Houthi rebels against shipping routes in the Red Sea increased fears of further disruptions to international oil trade. On top of that, attacks on the Caspian Pipeline Consortium terminal in the Black Sea added pressure on global energy markets.

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Brazil 10-Year Bond Yield Moves Higher

Brazilian Real Strengthens on Carry Trade

Brent Crude Holds Advance

Crude Oil Eases from 6-Week High