Key recent developments    Concerns about some correction in equities and UST seem to be fading assupportive earnings build and recent US data show no imminent price pressures.EM fixed income – still our favorite asset class – continues to perform whileEM FX returns hinge on whether funding is in USD (positive) or in EUR (almostsymmetrically negative). This is reflected in flows, as our FX update – shows.Inflows have bounced back after the ECB scare in Sintra and remain at a robustpace, with both institutional and retail inflows in solid footing. Inflows havebounced back after the ECB scare in Sintra and remain at a robust pace, withboth institutional and retail inflows in solid footing.    To Watch    Brazil’s congress is voting on whether President Temer should stand a trial forcorruption as we go to print. We expect them to be rejected by a small butcomfortable margin and thus a neutral outcome, but a narrow margin couldpave the way for more difficult votes as new accusations may be submitted tocongress. The opposition needs two-thirds of the chamber (342votes), whichlocal polls indicate to be unlikely to be met. We doubt the vote tally means muchfor the possible vote on social security (and other economic measures) sincethe issues involved in the economic reforms are a lot different than the politicalstruggles and ambitions of the different parties of the coalition still supporting thePresident – and their incentives to face the “Car Wash investigations”.After this vote is through, eyes will likely turn to the possible increase in thisyear’s fiscal deficit. The Central Bank does not seem to care that much given thedovish signals of late but a surprisingly large revision in excess of the slippage inrevenues may weigh on the Brazil curve (still with a steepening bias). Yesterdaywe highlighted our updated forecast for the path of the Selic rate for 2017and2018. Accordingly we now envision the terminal rate at 7.25% by year end andthe BCB on hold for the whole of 2018. With the market implying a terminal rateof approximately 8% and around 100bp of hikes priced in 2018we continue tosee value in the front end of the DI curve despite the significant rally of the last2weeks. In Brazil Rates – Front End Still has Value, we argue that our currentrecommendation – the Jul18|Jan19FRA – could potentially rally another ~60to 80bp if our forecast indeed materializes. We therefore move our current target and    stops of the Jul18| Jan197.90%/8.545% respectively (ref rate is 8.25%, originalentry 8.98%) looking to add on weakness and to re-evaluate the trade if the newtarget is reached.

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