VIEW: J.P.Morgan note that...........>

BRAZILIAN REAL: VIEW: J.P.Morgan note that "despite 225bp of policy cuts from

the central bank year-to-date, 10Y rates in Brazil have sold-off 61bp over this

period, being the worst performing 10Y local yield amongst 23 EM and DM

countries. A look at the performance of 10Y yields over past easing cycles would

have suggested lower yields, and the beta of the 10Y to the policy in our

fundamental valuation models is positive (suggesting lower rates as BCB cuts).

However, the directionality broke in this last cycle, as fiscal deterioration

and political uncertainty are offsetting the dovish BCB stance. Going forward,

because the fundamental challenges are unlikely to be sorted out any time soon,

we stay UW Rates and the BRL in our model portfolio. We note that QE may help

tame some rates pressures, but it is unlikely to alter the rates direction

meaningfully. The BRL rally of last month was likely much more linked to the

currency's high beta and light positioning in the context of a broader EM FX

rally. China's V-shaped recovery likely also boosted commodity linked currencies

relative to peers. Looking forward, we think BRL could be significantly repriced

as its sources of global support diminish."