October 9, 2018 / 8:15 PM / 7 months ago

EMERGING MARKETS-Brazil's real firms again; analysts say rally won't last

    By Susan Mathew
    Oct 9 (Reuters) - Brazil's real was on pace to log its
longest winning streak in nearly seven years on Tuesday, riding
high on optimism that the market's preferred presidential
candidate, Jair Bolsonaro, who has promised to tackle the
country's urgent economic issues, will cruise to a runoff
victory later this month.  
    The Argentine peso rose for a sixth session in seven,
while other Latin American currencies were lower, with Mexico's
peso down 0.5 percent. 
    The real firmed almost 2 percent and looked set to
close higher for a seventh straight day. It has gained more than
8 percent in the last seven sessions, a period when Bolsonaro
strengthened in late polls and then won the first round by a
strong margin. 
    Analysts, however, warn that the gains may fade as soon as
the wider gloom in emerging markets catches up with the rally.
The winning streak also signaled high expectations from the new
government once elected.
    "We generally urge caution, as the new president is facing a
difficult task. The budget urgently needs consolidation, at the
same time the economy is unable to gather momentum following the
years of severe recession," analysts at Commerzbank wrote in a
    "The new president will therefore have to deliver quickly to
convince the financial markets and rating agencies. The
potential for disappointment is likely to be high so we warn
against excessive euphoria," they wrote.  
    Similarly in Argentina, economists warn that the issuance of
short-term debt by the central bank at nose-bleed-high interest
rates raises questions over the bank's growing indebtedness.

    The Argentine peso closed 1.5 percent higher on
Tuesday, and has been firming on most days since the new
economic policies mandated by the International Monetary Fund
came into effect.
    The central bank has since sold billions worth of short-term
high yield notes called "Leliqs" at rates as high as 74 percent,
aimed at soaking excess liquidity and encouraging investment in
peso-denominated assets.
    The Merval stock index, however, was down 2.8
percent at a near one-month low, with broad-based losses.  
    Stock markets in Brazil and Mexico were
higher, in line with an upswing in equity markets in Europe and
Wall Street, as long-dated U.S. Treasury yields pulled back from
multi-year highs.
    Gains in Brazil's Bovespa stock index were led by oil
company Petrobras, rising 1.4 percent, in tandem with
oil prices, while iron ore miner Vale followed suit
with a 0.8 percent gain, as iron ore prices rose.
    Key Latin American stock indexes and currencies at 1913 GMT:
 Stock indexes                            Daily %    YTD %
                                 Latest    change   change
 MSCI Emerging Markets            995.50    -0.53   -14.07
 MSCI LatAm                      2748.02     4.37    -2.83
 Brazil Bovespa                 86285.68     0.23    12.94
 Mexico IPC                     48484.34     0.81    -1.76
 Chile IPSA                      5308.10    -0.36    -0.36
 Argentina MerVal               29687.41    -2.81    -1.26
 Colombia IGBC                  12487.77      0.5     9.82
 Currencies                               Daily %    YTD %
                                           change   change
 Brazil real                      3.7127     1.43   -10.76
 Mexico peso                     19.0249    -0.46     3.54
 Chile peso                        680.8     0.15    -9.72
 Colombia peso                    3060.1    -0.55    -2.55
 Peru sol                          3.326    -0.06    -2.68
 Argentina peso (interbank)      37.1200     1.29   -49.89
 Argentina peso (parallel)            37     2.03   -48.03

 (Reporting by Susan Mathew in Bengaluru; Editing by Leslie
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