October 18, 2018 / 3:04 PM / 10 months ago

EMERGING MARKETS-Hawkish Fed weakens Latam FX, stocks; Bank of Mexico minutes hit peso

    By Susan Mathew
    Oct 18 (Reuters) - A decline on Wall Street took most Latin
American stocks lower on Thursday, with Brazil declining for the
first time this week, while regional currencies mostly weakened
as the dollar gained after the U.S. Federal Reserve flagged
further rate hikes.
    The greenback hit near one-week highs as U.S.
Treasury yields edged higher after minutes from the Fed's
September meeting showed policy makers are largely united on the
need to raise borrowing costs further. This, coupled with some
weak earnings, led Wall Street lower at the open.
    "Stability in the dollar has shifted emerging market focus
from dollar concerns to growth differentials. With most
investors still skeptical of a broad EM rally, there is more
appetite in looking for relative value opportunities," analysts
at Goldman Sachs said in a note.
    However, "it is too early to declare that the rally in the
dollar has run its course," said Piotr Matys, an EM forex
strategist at Rabobank, in a note, signaling pain may continue
for developing currencies.
    Regional currencies weakened, with Mexico's peso
trading 1 percent lower after minutes of Bank of Mexico's
October meeting, at which it kept rate steady, reiterated an
upside risk to inflation, especially due to rising energy costs.

    Adding to the pressure, U.S. President Donald Trump said he
would have to close the border if Mexico did not move to halt
migrants headed for the United States, saying it was more
important to him than the new trade deal with Mexico to replace
the North American Free Trade Agreement pact.
    The Argentine peso dropped in volatile trade, having
reversed course after hitting a seven-week high earlier.
    Data on Wednesday that showed the country's consumer prices
rose 6.5 percent rise in September, taking annual inflation to
40.5 percent. But, that was in line with the median market
expectation, Credit Suisse analysts said in a note.
    Brazil's real also weakened, bucking its October
trend of gaining almost every day on hopes of economic reform as
polls point to a victory by market-favoured presidential
candidate Jair Bolsonaro.   
     Brazil's stocks, however, declined 0.9 percent with
shares of iron ore miner Vale being one of the
biggest drags.
    Meanwhile, the Chilean peso declined ahead of a
central bank meet later in the day. A central bank poll of
traders earlier this week had predicted a raise to 2.75 percent
by the year-end amid an upward trend in inflation. 
    Key Latin American stock indexes and currencies at 1436 GMT:
 Stock indexes                            Daily %      YTD %
                                           change     change
 MSCI Emerging Markets            974.02    -0.99     -15.08
 MSCI LatAm                      2737.02    -1.01      -2.23
 Brazil Bovespa                 85212.58    -0.64      11.53
 Mexico IPC                     47559.90    -0.69      -3.64
 Chile IPSA                      5124.79    -0.32      -0.32
 Argentina MerVal               28763.96     0.15      -4.33
 Colombia IGBC                  12610.09     0.07      10.90
 Currencies                               Daily %      YTD %
                                           change     change
 Brazil real                      3.6942    -0.36     -10.31
 Mexico peso                     19.0750    -1.07       3.27
 Chile peso                        675.4    -0.62      -8.99
 Colombia peso                   3088.24    -0.72      -3.44
 Peru sol                          3.339    -0.12      -3.05
 Argentina peso (interbank)      36.3000    -0.17     -48.76
 Argentina peso (parallel)         36.75     0.68     -47.67

 (Reporting by Susan Mathew in Bengaluru;
Editing by Marguerita Choy)
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