October 4, 2018 / 4:08 PM / 12 days ago

EMERGING MARKETS-Surging U.S. bond yields knock Latam FX

    By Susan Mathew
    Oct 4 (Reuters) - Latin American currencies and stocks
succumbed to surging U.S. government yields on Thursday,
mirroring declines seen across the globe earlier in the day,
with the Argentine peso weakening more than 2 percent.
    The yield on the benchmark 10-year note hit a
high of 3.232 percent, as robust U.S. economic data released the
day before raised prospects that the nonfarm payrolls report due
out on Friday morning would come in stronger than expected.

    The Argentine peso fell after accumulating gains of
about 9.3 percent over the past three sessions on the sale of
high-yield bonds by the central bank.
    The peso's rally had started to lose steam on Wednesday
after analysts warned of the unsustainability of this mechanism,
and as a central bank poll showed worsening economic outlook for
the country this year. 
    "This level of interest rates are not sustainable forever.
These are crisis-mode rates," said Gabriel Zelpo, chief
economist at local consultancy Elypsis.
    Meanwhile, Mexico's peso weakened ahead of a central
bank meeting later in the day when the majority of the analysts
polled expect the bank to stand pat on interest rates even as
U.S. tightening continues.
    Stabilizing inflation and ebbing trade concerns after a
successful attempt by the United States and Canada at
negotiating a free trade deal including Mexico backed the
expectation of the benchmark rate being held at 7.75 percent. 
    But some analysts predict a 25-basis-point hike to 8
percent, as they foresee external risk factors, such as
U.S.-China trade tensions affecting the peso.
    "If Banxico decides to keep its funding rate unchanged, the
pressure on the currency could intensify a little more; on the
contrary, if it surprises with a rise, the peso would cut
losses," CI Banco said in a note. 
    Brazil's real fell 0.5 percent in volatile trading
with the country's presidential race being thrown into further
chaos after a poll released late Wednesday pointed to a slight
second-round edge for leftist candidate Fernando Haddad - a
result not preferred by the market.
    The real had logged gains for the past three sessions after
polls had shown the market0preferred candidate, conservative
Jair Bolsonaro, had gained strong enough traction among voters
to beat Haddad.    
    The slightly better numbers for Haddad have dampened
speculation about a first-round win by Bolsonaro, CM Capital
Markets said in a note.
    The benchmark Bovespa stock index was more than 1
percent lower with power generation company Eletrobras
, whose privatization prospects likely depend on the
election result, falling 3 percent. 

    Key Latin American stock indexes and currencies at 1442 GMT:

 Stock                                    Latest    daily % change  YTD % change
   indexes                                                          
 MSCI Emerging Markets                    1009.91   -2.43           -10.65
                                                                    
 MSCI LatAm                               2622.10   -2.72           -4.7
                                                                    
 Brazil Bovespa                           81977.29  -1.56           7.30
 Mexico IPC                               48572.09  -0.88           -1.59
 Chile IPSA                               5325.92   -0.32           -0.32
 Argentina MerVal                         31914.81  -0.89           6.15
 Colombia IGBC                            12539.81  -0.43           10.28
                                                                    
 Currencies                               Latest    daily % change  YTD % change
 Brazil real                              3.9106    -0.61           -15.27
 Mexico peso                              19.0740   -0.16           3.28
 Chile peso                               671       -1.52           -8.40
 Colombia peso                            3022.91   -0.26           -1.35
                                                                    
 Peru sol                                 3.334     -0.36           -2.91
 Argentina peso (interbank)               38.4000   -1.85           -51.56
                                                                    
 Argentina peso (parallel)                38        1.32            -49.39
                                                                    
     

 (Reporting by Susan Mathew in Bengaluru, Claudia Violante in
Sao Paulo and Hugh Bronstein in Buenos Aires; editing by
Jonathan Oatis)
  
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