December 3, 2018 / 9:45 PM / 7 days ago

EMERGING MARKETS-LatAm FX, stocks rise on trade truce optimism

 (Recasts throughout, updates prices)
    By Susan Mathew
    Dec 3 (Reuters) - Latin American stocks and currencies rose
on Monday as risk appetite got a boost from a temporary truce in
the Sino-U.S. trade war, with Brazil shares hitting yet another
record high.
    Over the weekend, U.S President Donald Trump reached an
agreement with his Chinese counterpart Xi Jinping to hold off on
new tariffs for 90 days at the Group of 20 summit in Argentina.
 
   The MSCI index of Latin American equities
climbed to an over three-week high, while the currency index
 rose 1 percent with the Argentine peso
firming more than 3 percent against a weaker dollar.
    In addition to a ceasefire in the Sino-U.S. trade war,
Gustavo Rangel, chief LATAM economist at ING, attributes the
day's rally to a dovish turn in the U.S Federal Reserve last
week and regional assets being cheaper due to a recent sell-off.
 
    But, Rangel warned that while there is room for some
opportunistic, end-of-the-year rally, "it's not that EM are out
of the woods."
    "It's hard to imagine that things are resolved. The
Sino-U.S. deal looks more like a truce than a resolution. The
Fed is also a key component for future risk appetite. If markets
really recover, will the Fed return (to being hawkish)?"    
    On the day, the Mexican peso a weather vane for trade
sentiment, was up 0.2 percent, having hit its highest in more
than thee weeks earlier in the session.
    The weekend also saw the country's new president, leftist
Andres Manuel Lopez Obrador (AMLO), take office and reassure
investors after markets crashed last month on worries about his
policies.
    The peso and stocks got an additional boost as AMLO's
government launched a plan to buy back some of the debt issued
to fund the construction a partly built airport in Mexico City,
the cancellation of which had set off the decreasing investor
confidence in the new administration.
    In Brazil, the real gained 0.6 percent, while stocks
 hit a new all-time high for a third straight day.
    Commodity stocks led gains with iron ore  miner Vale
 and state-oil firm Petrobras rising, in
tandem with higher iron ore and oil prices respectively.

    Morgan Stanley analysts said that since tariffs have been
held back for the time being, "within the EM bloc, investors may
now switch from commodity-consuming towards commodity-producing
FX which, in the high-yield spectrum, may lend support to LatAm
currencies."
    Argentine assets outperformed their regional peers returning
from a three-day weekend, with the peso up 3.26 percent, and
stocks hitting their highest in a month, up 1.3 percent.
    "Argentine assets are super risky - so it rallies more when
risk appetite returns," ING's Rangel said.
    Gains were bolstered also by the country's central bank
signing a deal with China on Sunday to extend a currency swap by
$8.6 billion, bringing the total swap amount to $18.69 billion.

    
    Key Latin American stock indexes and currencies at 2129 GMT:
      Stock indexes         Latest     Daily    YTD pct
                                        pct      change
                                       change   
 MSCI Emerging Markets       1016.87      2.23    -12.22
                                                
 MSCI LatAm                  2641.79      1.62     -6.59
                                                
 Brazil Bovespa             89820.09      0.35     17.56
                                                
 Mexico IPC                 42076.98      0.82    -14.75
                                                
 Chile IPSA                  5151.67      0.78      0.78
                                                
 Argentina MerVal           31888.79      1.29      6.06
                                                
 Colombia IGBC              12083.40      4.12      6.27
                                                
                                                        
        Currencies          Latest     Daily    YTD pct
                                        pct      change
                                       change   
 Brazil real                  3.8410      0.02    -13.74
                                                
 Mexico peso                 20.3380      0.29     -3.14
                                                
 Chile peso                    668.8      0.55     -8.10
                                                
 Colombia peso                  3187      1.43     -6.43
 Peru sol                      3.381      0.03     -4.26
                                                
 Argentina peso              36.4800      3.59    -49.01
 (interbank)                                    
                                                
 Argentina peso                35.75      2.80    -46.21
 (parallel)                                     
                                                
 

 (Reporting by Susan Mathew in Bengaluru; editing by Jonathan
Oatis)
  
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