June 19, 2019 / 7:57 PM / a month ago

EMERGING MARKETS-Latam FX firm as Fed meets expectations on rate cut signals

 (Updates prices)
    By Susan Mathew
    June 19 (Reuters) - Latin American currencies firmed on
Wednesday, with Brazil's real and Mexico's peso reversing
session losses to trade higher after the Federal Reserve
signaled possible rate cuts of as much as half a percentage
point in 2019.
    Brazil's real was up 0.2%, reversing losses of up to
0.6% logged earlier in the day, while Mexico's peso rose
0.1%, recovering from a decline of as much as 0.4%. Other
regional currencies added to their gains.
    Most Latam stocks followed suit, with Sao Paulo-traded
shares erasing losses to trade 0.8% higher, while gains in
Mexican and Colombian stocks were bolstered. 
    "As is stands, it (Fed statement) is EM positive and dollar
negative," said Christian Lawrence, a senior market strategist
at Rabobank. 
    The dollar fell sharply after the Fed held rates unchanged.
Chair Jerome Powell reiterated at the press conference that
members of the Federal Open Market Committee see a stronger case
for rate cuts. This met broad market expectations.

    The Fed move comes just a day after the European Central
Bank chief's sharp dovish turn had fueled hopes of a global wave
of central bank stimulus which gave a fillip to markets
worldwide.
    Investors in Brazil's real will now be watching for the
local central bank's interest rate decision at market close,
which is also expected to signal rate cuts while holding the key
rate steady at this meeting.
    "The combination of weak data and increased pension reform
approval chances have led markets to price in almost 70 basis
points of cuts in 2019," Morgan Stanley strategists said in a
note, adding that a rate cut before September seemed unlikely.
    "We do think that there might be greater room to cut as the
neutral rate continues to decline. So, if the central bank were
to approach a potential easing cycle similar to how it has done
in the past, then markets could price in an additional 100-125
bp of cuts next year," they said.  
    Meanwhile, gains on Brazil's Bovespa stock index were
limited by a 5% slump in Smiles Fidelidade.
    Gol Linhas Aereas Inteligentes, the country's
largest domestic airline, said it had failed to reach an
agreement to buy out its independently listed loyalty program,
Smiles Fidelidade, after five months of negotiations.
 
    Gol shares traded 3% higher, reversing early losses. 
    Stock indexes in Chile and Argentina
stayed in the red, although those in Chile cut some losses.
    Data showed that Argentina's economy contracted 5.8% in the
first quarter of 2019 versus the same period a year
earlier.
      
    Key Latin American stock indexes and currencies at 1930 GMT:
     Stock indexes             Latest      Daily
                                            pct
                                           change
 MSCI Emerging Markets          1,040.73      1.64
                                          
 MSCI LatAm                     2,815.17      0.72
                                          
 Brazil Bovespa               100,219.92      0.82
 Mexico IPC                    43,351.80      0.44
 Chile IPSA                     5,036.11     -0.09
 Argentina MerVal              40,315.88     -0.91
 Colombia IGBC                 12,548.38      0.82
                                                  
        Currencies              Latest    Daily %
                                           change
 Brazil real                      3.8531      0.16
 Mexico peso                     19.0918      0.14
 Chile peso                        692.2      0.58
 Colombia peso                  3,236.03      0.53
 Peru sol                          3.329      0.09
 Argentina peso (interbank)      43.2800      0.49
                                          
 

 (Reporting by Susan Mathew in Bengaluru;
Editing by Phil Berlowitz)
  
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