EMERGING MARKETS-Latam assets gain as higher commodity prices, soft dollar cushion BOJ blow

* Chile economy faces ‘unavoidable’ adjustment – central bank chief * Mexico headline inflation seen rebounding – Poll * Fitch affirms Brazil at ‘BB-‘ stable outlook * China holds benchmark lending rates for the fourth consecutive month (Updates prices, details; adds comments) By Shreyashi Sanyal and Bansari Mayur Kamdar Dec 20 (Reuters) – Most Latin American currencies and stocks rose on Tuesday as higher commodity prices and a sliding dollar helped them overcome the broader risk-off mood in the global financial markets after the Bank of Japan’s surprise policyshift. Brazil led the advance, with its real up 1.7% against a weaker dollar, while Sao Paulo’s Bovespa stock index gained 2.4% to hit a one-week high. Top Brazilian miner Vale rose 0.7%, while state-owned oil giant Petrobras gained 2.8%%. Prices of oil, industrial and precious metals rose, lifting assets of most commodity-export oriented countries in Central and South America. The Brazilian Supreme Court on Monday granted an injunction allowing President-elect Luiz Inacio Lula da Silva to increase social investment, while outlawing an opaque congressional spending program. Fitch affirmed Brazil’s rating at “BB-” with a stable outlook. Chile’s peso and Peru’s sol added 0.4% and 0.2%, respectively, tracking firm copper prices. The Mexican peso was subdued, with investors nervous ahead of Mexico’s inflation data this week. Headline inflation for Mexico is forecast to have rebounded in the first half of December after six fortnights of slowing, a Reuters poll showed, backing bets the Bank of Mexico will continue to hike interest rates. The Chilean economy faces a period of adjustment in the next two years to correct accumulated debts and bring down inflation, the central bank chief said. The MSCI’s index for Latin American stocks gained 2.9%, against a 0.6% fall in the broader emerging markets equity index. “The US Federal Reserve actually out-hiked most EMs in Q4, compressing the policy rate differentials with all EM region,” said Natalia Gurushina, emerging markets fixed income chief economist at VanEck in a note. “This might be less of a problem in Latam, where the policy differential is still the widest. However, it remains to be seen whether this would be enough to compensate for the political noise and policy uncertainty in the region.” Most Asian and European markets were left reeling after Japan’s central bank widened the allowable band for long-term yields to 50 basis points either side of its 0% target, from 25 basis points previously. The move stunned investors already worried about the economic fallout of rising interest rates and surging inflation, and was seen by many as a possible end to Japan’s ultra-loose monetary policy. “It’s important not to underestimate the impact this could have, because tighter BoJ policy would remove one of the last global anchors that has helped to keep borrowing costs at low levels more broadly,” Deutsche Bank analyst Henry Allen said in a client note. Also weighing on global sentiment was a surge in coronavirus infections in China, with many fearing a new wave of infections could further hit corporate supply chains. Stocks in China ended lower. China kept benchmark lending interest rates unchanged for the fourth consecutive month. Among other emerging markets, Hungary’s forint slipped 0.2% against the euro after the country’s central bank left interest rates unchanged. Latin American stock indexes and currencies at 1900 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 951.71 -0.62 MSCI LatAm 2129.82 2.81 Brazil Bovespa 107238.45 2.39 Mexico IPC 50154.72 0.42 Chile IPSA 5287.81 1.55 Argentina MerVal 172335.85 1.995 Colombia COLCAP 1211.53 -0.32 Currencies Latest Daily % change Brazil real 5.2074 1.93 Mexico peso 19.7930 -0.01 Chile peso 885.7 0.30 Colombia peso 4762.07 0.25 Peru sol 3.8198 0.24 Argentina peso (interbank) 173.9100 -0.16 Argentina peso (parallel) 322 Bangalar 0.93; Editing by Arun Koyyur and Grant McCool)

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