November 18, 2016 / 1:22 PM / 2 years ago

EMERGING MARKETS-Brazil real extends recovery despite Fed, Trump woes

By Bruno Federowski
    SAO PAULO, Nov 18 (Reuters) - The Brazilian real extended
its recovery for the third straight day on Friday as market
intervention by the central bank and Treasury stemmed a selloff
that some traders said was overdone.
    The real strengthened 0.8 percent past 3.40 to the
dollar in morning trading, extending gains to 1.4 percent since
    The currency had slumped last week on concerns that heavy
spending and lower taxes under U.S. President-elect Donald Trump
could force the Federal Reserve to raise rates faster than
    Remarks by Fed Chair Janet Yellen suggesting a December rate
increase was on track also weighed on demand for high-yielding
emerging market assets, with the Turkish lira reaching a
record low.
    The real lost 8 percent in the four days following Trump's
Nov. 8 victory, the second-worst performer after the Mexican
peso among Latin American currencies. 
    The sharp move "caught many off-guard, given that the real
had been the world's best-performing currency this year," said
Paulo Nepomuceno, Coinvalores brokerage's head of fixed income.
    Heavy central bank and National Treasury intervention in
currency and bond markets, however, seemed enough to stem the
real's bleeding, at least for now.
    Many analysts have singled out the real as among the
currencies least vulnerable to U.S. political developments,
citing expectations of fiscal reform under President Michel
    On the other end of the spectrum, the Mexican peso 
weakened as much as 1.6 percent on Friday, although it later
pared losses to trade flat. 
    The Mexican central bank raised rates by 50 basis points
late on Thursday, disappointing investors who hoped for a bigger
    Societe Generale recommended clients bet the peso will
weaken even more, to 23 to the dollar from 20.4 currently.
    "Rate hikes alone will be insufficient to turn around the
currency, though more aggressive action could mitigate downside
pressure," analysts led by Jason Daw wrote in a report.

    Key Latin American stock indexes and currencies at 1250 GMT:
 Stock indexes                                daily %    YTD %
                                               change   change
 MSCI Emerging Markets                846.18    -0.12     6.68
 MSCI LatAm                          2270.26     -0.1     24.2
 Brazil Bovespa                     59780.58     0.02    37.90
 Chile IPSA                          4190.85     0.12    13.88
 Chile IGPA                         20962.03     0.11    15.48
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          3.3910     0.78    16.40
 Mexico peso                         20.4255     0.02   -15.64
 Chile peso                            676.7    -0.03     4.88
 Colombia peso                       3157.85    -0.14     0.36
 Argentina peso (interbank)          15.4750     0.19   -16.11
 Argentina peso (parallel)             15.63     0.13    -8.70
 (Reporting by Bruno Federowski; Editing by Daniel Flynn and
Lisa Von Ahn)
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