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EMERGING MARKETS-Latam stocks, FX pause as key central bank meetings loom

Sruthi Shankar

(Updates prices, changes analysts' quote) Sept 9 (Reuters) - Latin American stocks held near three-week highs on Monday, and a rally in the region's currencies halted as investors stayed on the sidelines ahead of monetary policy decisions from major central banks that could set the tone for risky assets. The MSCI's index of Latin American currencies dropped 0.6% after closing out its biggest weekly gain since February on Friday, helped by signs of further stimulus for China's slowing economy and firming U.S. interest rate cut expectations. Brazil's real eased from two-week highs hit last week to drop 0.9%, while currencies of Mexico, Chile and Colombia fell between 0.2% and 0.5%. Investors are looking ahead to the European Central Bank's meeting on Thursday, where the central bank is expected to introduce a fresh round of stimulus to prop up an ailing euro zone economy. In Mexico, consumer price inflation slowed more than expected in August to near a three-year low, government data showed, giving room for its central bank to lower rates further.

Mexico's government cautiously freed up funds for spending in its 2020 budget proposal on Sunday, with a primary fiscal surplus of 0.7% of gross domestic product targeted in the budget for next year - below earlier targets. "A weakening global growth outlook will affect LatAm FX via a deterioration of the terms of trade," Societe Generale's Bertrand Delgado said in a note. "In the upcoming weeks, however, LatAm FX might recover some recent loses as valuations look cheap and the USD might lose some support as the Fed is expected to lower rates at the September meeting," he said. Markets in the resource-rich Latin American economies had taken a beating in August as the United States and China escalated their trade dispute with additional tariffs on each other's goods, with growth dwindling in both Brazil and Mexico. Chile's peso took a hit on Monday as copper prices slipped on weak China export data, hurting the currency of the world's largest producer of the red metal. The Argentine peso remained steady after last week's imposition of capital controls helped arrest a sharp plunge in the peso, hit by business-friendly President Mauricio Macri's poor performance at the presidential primaries last month. Polls are predicting a huge win for populist-leaning Alberto Fernandez, who won by a far larger-than-expected margin in August, dashing Macri's hopes of being re-elected at the end of the year. Sao Paulo-listed stocks were flat, as gains in material shares, including those in miner Vale, offset losses in consumer companies such as meatpacker JBS SA and electronics and appliance retailer Magazine Luiza SA. Shares of meatpackers Minerva and Marfrig jumped between 3.8% and 5% after Brazil's agriculture ministry said China authorized some Brazilian meat processing facilities to export to the Asian country.

Latin American stock indexes and currencies at 1940 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1009.93 0.2MSCI LatAm 2664.96 -0.59Brazil Bovespa 102971.07 0.03Mexico IPC 42700.22 -0.02Chile IPSA 4860.63 0.77Argentina MerVal 27066.97 -2.143Colombia IGBC 12745.02 0.3Currencies Latest Daily %

change

Brazil real 4.0983 -0.91Mexico peso 19.5740 -0.23Chile peso 714.5 -0.48Colombia peso 3368.7 -0.52Peru sol 3.349 -0.21Argentina peso (interbank) 56.0000 -0.32

(Reporting by Sruthi Shankar in Bengaluru; editing by Jonathan Oatis)