June 11, 2018 / 3:23 PM / 10 months ago

EMERGING MARKETS-Brazil real outperforms as central bank offsets trade woes

    By Bruno Federowski
    BRASILIA, June 11 (Reuters) - The Brazilian real firmed on
Monday, taking a breather from the sharp swings it saw last week
on rising trade tensions overseas and the central bank's
intervention to bolster the currency.
    The real posted its largest daily gain on Friday in a
decade after central bank chief Ilan Goldfajn said the bank
could offer as much as $20 billion worth of new currency swaps,
which function like dollar sales for future delivery, to provide
liquidity and cushion the currency's selloff earlier last week.
    The bank could also resort to other instruments, such as
repo contracts or even dollar sales in the spot market, Goldfajn
    "The bank cannot be predictable, otherwise it may end up
setting up a floor and a ceiling for the currency, so that keeps
the market on its toes," a manager at a São Paulo-based
brokerage said.
    Goldfajn's remarks helped to curb losses in the Brazilian
real, which after weakening around 10 percent this year ranks as
Latin America's second-worst performing currency.
    For months, analysts and investors have warned that concerns
over Brazil's fiscal outlook and this year's presidential
elections have left the currency more vulnerable to sudden
swings in demand for emerging market assets.
    Those warnings proved to be well founded over the last few
weeks as bets on accelerating U.S. inflation, a widening U.S.
fiscal deficit, fears of a global trade war and geopolitical
tensions drove worldwide risk aversion, leading many investors
to start to unwind bets on emerging market assets.
    The selloff gained further impetus on Monday after U.S.
President Donald Trump lashed out at Canada and Europe over the
U.S. trade deficit.
    The Mexican peso, which has been dogged by fears
that Trump may scrap the North American Free Trade Agreement
(NAFTA) between the United States, Canada and Mexico, fell 0.6
percent, while most other Latin American currencies retreated
    Yet the Brazilian real strengthened further, making it by
far the best-performing currency in the region. A recent poll
showing a rising number of undecided voters in October's
elections, which some traders took as a sign that recent support
for populist candidates may be fleeting, also helped allay
investors' angst.
    Brazil's benchmark Bovespa stock index rose 0.4
percent, with shares of electric appliance retailers B2W Cia
Digital SA and Via Varejo SA among the
largest gainers.
    In a client note, analysts at Brasil Plural said analyst
discussions with Via Varejo's management suggested a nationwide
truckers' strike is unlikely to offset organic sales growth in
recent quarters, while the company should also benefit from the
World Cup soccer championship this month.
    Key Latin American stock indexes and currencies at 1400 GMT:
 Stock indexes                            daily %     YTD %
                                           change    change
 MSCI Emerging Markets           1140.70     0.47     -1.99
 MSCI LatAm                      2520.27     1.92    -12.57
 Brazil Bovespa                 73221.06     0.38     -4.16
 Mexico IPC                     46074.90     0.29     -6.64
 Chile IPSA                      5546.28     0.42     -0.33
 Chile IGPA                     28025.99     0.32      0.16
 Argentina MerVal               31444.08        0      4.58
 Colombia IGBC                  12251.57    -0.09      7.75
 Currencies                               daily %     YTD %
                                           change    change
 Brazil real                      3.6826     0.63    -10.03
 Mexico peso                     20.4050    -0.55     -3.46
 Chile peso                        632.6    -0.35     -2.84
 Colombia peso                   2861.06    -0.19      4.23
 Peru sol                          3.262    -0.03     -0.77
 Argentina peso (interbank)      25.4000    -0.12    -26.77
 Argentina peso (parallel)         25.75    -0.78    -25.32
 (Reporting by Bruno Federowski
Additional reporting by Paula Laier and Claudia Violante in São
Editing by Paul Simao)
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