EMERGING MARKETS-Latam FX firm as Fed meets expectations on rate cut signals
By Susan Mathew
June 19 (Reuters) - Latin American currencies firmed on Wednesday, with Brazil's real and Mexico's peso reversing session losses to trade higher after the Federal Reserve signaled possible rate cuts of as much as half a percentage point in 2019.
Brazil's real BRL= was up 0.2%, reversing losses of up to 0.6% logged earlier in the day, while Mexico's peso MXN= rose 0.1%, recovering from a decline of as much as 0.4%. Other regional currencies added to their gains.
Most Latam stocks followed suit, with Sao Paulo-traded shares erasing losses to trade 0.8% higher, while gains in Mexican .MXX and Colombian .IGBC stocks were bolstered.
"As is stands, it (Fed statement) is EM positive and dollar negative," said Christian Lawrence, a senior market strategist at Rabobank.
The dollar fell sharply after the Fed held rates unchanged. Chair Jerome Powell reiterated at the press conference that members of the Federal Open Market Committee see a stronger case for rate cuts. This met broad market expectations. FRX/MKTS/GLOB
The Fed move comes just a day after the European Central Bank chief's sharp dovish turn had fueled hopes of a global wave of central bank stimulus which gave a fillip to markets worldwide.
Investors in Brazil's real will now be watching for the local central bank's interest rate decision at market close, which is also expected to signal rate cuts while holding the key rate steady at this meeting.
"The combination of weak data and increased pension reform approval chances have led markets to price in almost 70 basis points of cuts in 2019," Morgan Stanley strategists said in a note, adding that a rate cut before September seemed unlikely.
"We do think that there might be greater room to cut as the neutral rate continues to decline. So, if the central bank were to approach a potential easing cycle similar to how it has done in the past, then markets could price in an additional 100-125 bp of cuts next year," they said.
Meanwhile, gains on Brazil's Bovespa stock index were limited by a 5% slump in Smiles Fidelidade SMLS3.SA.
Gol Linhas Aereas Inteligentes GOLL4.SA, the country's largest domestic airline, said it had failed to reach an agreement to buy out its independently listed loyalty program, Smiles Fidelidade, after five months of negotiations.
Gol shares traded 3% higher, reversing early losses.
Stock indexes in Chile .SPIPSA and Argentina .MERV stayed in the red, although those in Chile cut some losses.
Data showed that Argentina's economy contracted 5.8% in the first quarter of 2019 versus the same period a year earlier.
Key Latin American stock indexes and currencies at 1930 GMT:
Daily pct change
MSCI Emerging Markets .MSCIEF
MSCI LatAm .MILA00000PUS
Brazil Bovespa .BVSP
Mexico IPC .MXX
Chile IPSA .SPIPSA
Argentina MerVal .MERV
Colombia IGBC .IGBC
Daily % change
Brazil real BRBY
Mexico peso MXN=D2
Chile peso CLP=CL
Colombia peso COP=
Peru sol PEN=PE
Argentina peso (interbank) ARS=RASL
(Reporting by Susan Mathew in Bengaluru; Editing by Phil Berlowitz)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.