November 28, 2018 / 2:32 PM / 16 days ago

EMERGING MARKETS-Brazil's real gains for second day on central bank support, peso firms too

    By Sruthi Shankar
    Nov 28 (Reuters) - The Brazilian real firmed for a second
day on Wednesday, aided by a central bank move to improve market
liquidity, and the Mexican peso also edged higher, rebounding
from recent declines.
    The real gained 0.53 percent after Brazil's central
bank offered $1 billion in dollar repurchase agreements, on top
of its $2 billion offer on Tuesday, which sold out.
    "BRL's underperformance over the past week has been related
to a USD liquidity shortage onshore, and these auctions should
help to retrace the upward move in USDBRL," James Lord, lead
Morgan Stanley analyst on emerging markets, wrote in a note.
    Aside from liquidity issues and concerns about
President-elect Jair Bolsonaro's efforts to reduce Brazil's
budget deficit, trade disputes and rising U.S. interest rates
have battered the real alongside other emerging market
currencies.
    In the forefront of investors' minds this week are trade
talks between U.S. President Donald Trump and Chinese President
Xi Jingping at the upcoming Group of 20 Summit, with any
positive news likely to boost risk sentiment.
    "That's the big thing. I'm not sure the market's got any
great expectations out of that meeting. There's a potential for
positive headlines but no radical changes to the status quo,"
said Paul Fage, senior emerging markets strategist at TD
Securities in London. 
    U.S. Federal Reserve Chief Jerome Powell was set to speak at
12 p.m. EST (1700 GMT), with investors looking for hints on how
many times the Fed will raise rates next year as tighter
monetary conditions across the globe hit capital inflows into
emerging markets.
    The Mexican peso rose 0.5 percent ahead of a
quarterly inflation report from its central bank, adding to
gains after Mexican Foreign Minister Luis Videgaray said the
country's economy minister would sign the new North American
trade pact agreed to in August.
    Despite the gains, the currency is trading near five-month
lows against the dollar amid concerns about President-elect
Andres Manuel Lopez Obrador's stewardship.
    Many banks are forecasting a weaker peso next year and lower
growth, partly because of concern about economic policy under
Lopez Obrador, who takes office on Dec. 1.
    "We think that the bank will cut its 2019 growth forecast
... given the worsening in investment prospects on the back of
the cancellation of the construction of the Mexico City
airport," Alonso Cervera, Credit Suisse analyst, wrote in a
note. 
    Among stocks, Brazil's benchmark Bovespa stock index
gained 0.5 percent, as shares of steelmakers rose on a recovery
in the metal's price in China. 
    Companhia Siderurgica Nacional rose 1.9 percent,
Usiminas Siderurgicas de Minas Gerais SA gained 2
percent and Vale SA, the world's largest iron ore
miner, was up 1.7 percent.
    The latest Reuters poll showed the Bovespa stock index
extending this year's rally into 2019 to end the year at
107,500. The index is up nearly 12 percent this year, bolstered
by Bolsonaro's victory in the presidential elections.

    
    Key Latin American stock indexes and currencies at 1355 GMT:
   
 Stock indexes                           daily %  YTD % change
                                          change  
                              Latest              
 MSCI Emerging Markets          989.38      0.94        -15.39
                                                  
 MSCI LatAm                    2561.28      0.91        -10.25
                                                  
 Brazil Bovespa               88365.59      0.54         15.66
                                                  
 Mexico IPC                          -         -             -
                                                  
 Chile IPSA                    5115.13     -0.25         -0.25
                                                  
 Argentina MerVal                    -         -             -
                                                  
 Colombia IGBC                       -         -             -
                                                  
                                                              
 Currencies                              daily %  YTD % change
                                          change  
                                                  
                                Latest            
 Brazil real                    3.8555      0.50        -14.06
                                                  
 Mexico peso                   20.3788      0.45         -3.34
                                                  
 Chile peso                      671.2      0.57         -8.43
                                                  
 Colombia peso                       -         -             -
 Peru sol                            -         -             -
                                                  
 Argentina peso (interbank)          -         -             -
                                                  
 
 (Reporting by Sruthi Shankar in Bengaluru; editing by Jonathan
Oatis)
  
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