EM LATAM CREDIT: Brazil Corporate Bonds: Market Update – Negative

Core goods inflation is expected to accelerate a little further in August on a M/M basis and tariff revenues still point to further solid increases ahead, but the pace at which tariff revenues have been closing the gap with implied tariff rates has slowed in recent months. 

• Monthly core goods CPI inflation is expected to accelerate in tomorrow’s August release, with analyst expectations averaging 0.3% M/M after two months at 0.2% M/M (including July’s undershooting of then expectations of a 0.4% increase).
• It comes as tariff-driven price increases are generally seen to be getting towards the largest for the year. There’s a rough consensus of a three-month lag from tariff implementation to more notable consumer price increases. That factors in the time taken for shipments, a front-loading of imports that built up inventories and points including importers using the automatic payment transfer system being able to delay their tariff payments for up to 1.5 months.
• On a similar note, the July Beige Book noted that “Contacts that plan to pass along tariff-related costs expect to do so within three months” whilst the August Beige Book, published Sep 3, noted that “Nearly all Districts noted tariff-related price increases, with contacts from many Districts reporting that tariffs were especially impactful on the prices of inputs.”
• Latest tariff revenue meanwhile suggests we’re still a little way off seeing the full impact from tariffs on prices. The effective tariff rate currently stands at 17.4% according to Yale Budget Lab calculations (pre-substitution, i.e. keeping trade shares constant) whereas the $31bn of Treasury deposits from customs and certain excise duties in August was worth 11-11.5% of goods imports depending on whether you take 2024 levels for a similar static approach or annualized July data.
• The speed at which the tariff collection rate is increasing has slowed notably in recent months, suggesting it could take a while for this gap to the effective rate to be closed. Indeed, the $31.3bn of tariff revenues is vs $30.1bn in July and $28.4bn in June, after larger increases from $24.0bn in May, $17.4bn in April and $9.6bn in March.
• Alternatively, whilst these tariff revenues are still on the small side compared to what effective rates might suggest, they were still worth a sizeable ~1.8% of overall personal consumption expenditure. That’s an increase of ~1.3pp under the Trump administration so far, but of course doesn’t give insight into burden sharing across importers, businesses and consumers. 

• Treasuries look to finish near late Thursday session highs after soft PPI data and a strong 10Y Treasury auction re-open, futures back near last Friday highs ahead of tomorrow's headline CPI inflation data.
• After the bell, Dec'25 10Y futures trades +8 at 113-19 vs. 113-20.5 high, initial technical resistance at 113-21+ High Sep 5, followed by 113-26.5 (2.764 proj of the Jul 15 - 22 - 28 price swing).
• The main headline PPI final demand unexpectedly fell by 0.1% M/M (+0.3% expected, with a prior rev to 0.7% from 0.9% prior). The ex-food/energy metric posted identical figures, including the downward revision. This was the lowest for each since April.
• Treasuries climbed higher after the strong $39B 10Y note auction re-open (91282CNT4) stopped through: drawing 4.033% high yield vs. 4.047% WI; 2.65x bid-to-cover vs. 2.35x prior. Dec'25 10Y futures extended highs: 113-20.5, 4.0321% yld, before drawing some fast$ selling.
• Despite the dovish adjustment for US yields in the aftermath of the US PPI report, the impact on the USD index has been more muted, with just a 0.05% move lower on the session.
• Focus turns to Thursday's ECB rate decision/press conference and the key US CPI release: Consensus (Bloomberg median) is for core CPI to come in at 0.3% M/M rounded in August, same as July (0.32% unrounded). Unrounded core CPI expectations suggest a slight skew toward risks of a rounded-up 0.4%, with an unrounded MNI median of 0.32% and range of estimated of 0.29% to 0.36%.

• RES 4: 177.08 2.000 proj of the Feb 28 - Mar 18 - Apr 7 price swing 
• RES 3: 175.43 High Jul 11 ‘24 and a key medium-term resistance
• RES 2: 174.86 1.764 proj of the Feb 28 - Mar 18 - Apr 7 price swing
• RES 1: 173.97 High Jul 28 and the bull trigger 
• PRICE: 172.73 @ 16:32 BST Sep 10
• SUP 1: 171.20 50-day EMA
• SUP 2: 169.73/45 Low Jul 31 / 23.6% of the Feb 28 - Jul 28 bull leg
• SUP 3: 168.46 Low Jul 1  
• SUP 4: 167.46 Low Jun 23   

The trend set-up in EURJPY is unchanged, it remains bullish and sights are on key resistance and the bull trigger at 173.97, the Jul 28 high. Clearance of this level would confirm a continuation of the bull phase. Note that moving average studies are in a bull-mode position too, highlighting a primary uptrend. A break of 173.97 would open 174.86, a Fibonacci projection. Key support to watch lies at the 50-day EMA at 171.20.