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The Brazilian real weakened to 5.21 per USD, reaching its weakest level in more than a month in mid-August as investors continued to reduce their exposure to Brazilian assets. The market is pricing in uncertainty over the next government and its economic agenda. The perception that the next government will struggle to implement a consistent fiscal adjustment is beginning to translate into a higher risk premium in asset prices. Concerns are increasing as elections approach and foreign capital outflows accelerate. Banks and brokerages have also reduced their exposure to the real, unwinding currency positions in favor of other emerging-market currencies. The move intensified following a more pessimistic view of the local market from JPMorgan. The bank downgraded its recommendation on Brazilian assets from overweight to neutral, citing the Selic easing cycle, the electoral outlook and deteriorating credit conditions.

Brazilian Real Weakens to One-Month Low

Brazil’s 10-year government bond yield rose to 14.9% in mid-August, nearing a one-month high following a rise in US Treasury yields. US Treasury yields increased amid elevated inflation expectations. Worsening risk perception as Brazil’s October presidential election approaches also contributed to the rise, with markets pricing in uncertainty surrounding the next government and its economic agenda. Concerns that the next government could face difficulties implementing a consistent fiscal adjustment are beginning to translate into a higher risk premium in asset prices. Fiscal concerns persist amid signals of higher government spending and pressure on revenues from new US tariffs. Meanwhile, the Copom signaled a cautious approach to further interest rate cuts. Brazil also created a net 145,161 formal jobs in June, well above expectations for 115,000, reinforcing labor market resilience and supporting expectations that interest rates will remain restrictive.

Brazil 10-Year Yield Nears One-Month High

Canada’s 10-year government bond yield rose to 3.68%, approaching the over-two-month high of 3.72% touched on August 10th, following stronger-than-expected manufacturing sales data. Canadian factory sales rose 0.1% in June from May, beating expectations for a decline and marking a fifth consecutive monthly gain, while sales volumes increased 1.2%. Recent data also showed a stronger Canadian labor market, while Canada’s economy is estimated to have expanded at an annualized 3.4% in the second quarter, well above the Bank of Canada’s 2.5% forecast. The strong macroeconomic data raised expectations for a potential BoC rate hike if energy prices remain elevated. In July, the Bank of Canada held its policy rate at 2.25% for a sixth consecutive meeting, noting that the economy was adjusting to recent shocks and that energy-driven inflation pressures were easing. However, policymakers warned that inflation expectations remained elevated and questioned the durability of the recovery.

Canadian Yields Rise on Strong Macroeconomic Data

The Ibovespa shed 0.1% to close at 166,934 on Friday, extending its seven-month low. Oil and gas prices gained as the US threatened to intensify economic pressure on Iran, including by extending the naval blockade. Energy-driven inflationary pressures weighed on financials and other credit-sensitive shares as bond yields moved higher. Bradesco lost 0.7%, Itaúsa shed 0.4% and B3 fell 0.6%, while Itaú (+1.8%) and Banco do Brasil (+0.9%) bucked the trend. Utilities also traded lower, with Sabesp down over 2% and CPFL losing over 4.5% after reporting earnings, as growth in its industrial sector was modest and net debt rose 19.2%. Renner shed 2.6% after UBS BB abandoned its buy recommendation and cut its price target. Raízen (-4%) posted a net loss in the first quarter of fiscal 2026/27. Vale (-0.8%), Ambev (-1.1%) and Rede D’Or (-2.5%) also weighed on the index. On the upside, Petrobras rose 0.4% on higher oil prices, while Embraer added 2.4% after JPMorgan raised its price target.

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