October 3, 2018 / 8:38 PM / 3 months ago

EMERGING MARKETS-Brazil real trims gains on dollar strength, Mexican peso slips

    By Susan Mathew and Miguel Gutierrez
    Oct 3 (Reuters) - The Brazilian real rallied on Wednesday,
lifted by election optimism, but the currency gave up a large
chunk its earlier gains while the Mexican peso headed lower as
the dollar rallied after strong U.S. economic data.
    The greenback gained as data showed U.S. services sector
activity raced to a 21-year high in September and companies
boosted hiring, signs of enduring strength in the economy at the
end of the third quarter.
    Mexico's peso gave up gains of about 0.4 percent
earlier to weaken by more than 1 percent, its worst session in
more than a month, ahead of a central bank meeting on Thursday.
    The bank is expected to leave its interest rate unchanged at
7.75 percent as inflation slows and trade uncertainty ebbed
after the United States-Mexico-Canada (USMCA) deal over the
weekend.
    A strengthening dollar, boosted by strong economic data out
of the U.S. kept pressure on the peso, analysts said.
    "The momentum of the USMCA has already passed and the peso
has a downward trend looking for a respite that may not be until
next week if the U.S. data continue pointing to a solid
economy," said Alfonso Esparza, senior market analyst at
brokerage Oanda.
    Brazil's real was 0.9 percent higher, trimming gains
of more than 2 percent earlier. Still, the currency was on track
for a third straight day after a poll showed market-preferred
conservative Jair Bolsonaro would likely beat main rival
Fernando Haddad from the leftist Worker's Party.

     Banks drove gains on the Brazilian stock exchange, Bovespa
, with the country's biggest lender Banco do Brasil
 rising nearly 4 percent.
    Argentina's peso also gained, supported by a surge in sale
of seven-day notes, or leliqs, by the central bank. The bank
sold 109.52 billion pesos ($2.894 billion) worth of leliqs at a
71.267 percent yield, more than what was sold in each of the
past two days.
    The peso, also retreated from earlier gains, closing
0.8 percent firmer at 37.74 against the dollar. 
    Leliq sales are a way of absorbing excess peso liquidity
available so that nervous investors do not turn to safe-haven
buying of the dollar amid soaring inflation.  
    But, investors remain wary of this mechanism as the high
yields on the notes are unsustainable in the medium term, said 
Gustavo Ber, an economist at Estudio Ber.
    "This monetary policy is very strong medicine, and while it
has calmed the financial markets, it undermines the prevailing
tax policy and does not strengthen the real economy," Ber said.
    A central bank poll had showed the country's inflation and
economic growth worsening from previous expectations by the end
of the year.  
    
    Key Latin American stock indexes and currencies at 1937 GMT:
 Stock                                    Latest    daily % change  YTD % change
   indexes                                                          
 MSCI Emerging Markets                    1030.89   -0.23           -10.8
                                                                    
 MSCI LatAm                               2662.19   1.23            -7.01
                                                                    
 Brazil Bovespa                           82928.20  1.61            8.54
 Mexico IPC                               49044.37  -0.67           -0.63
 Chile IPSA                               5337.18   0.26            0.26
 Argentina MerVal                         32418.41  -0.95           7.83
 Colombia IGBC                            12582.85  0.54            10.66
                                                                    
 Currencies                               Latest    daily % change  YTD % change
 Brazil real                              3.8899    1.13            -14.82
 Mexico peso                              18.9916   -1.04           3.72
 Chile peso                               660.8     -0.36           -6.98
 Colombia peso                            3015.35   0.00            -1.11
                                                                    
 Peru sol                                 3.322     -0.30           -2.56
 Argentina peso (interbank)               37.6000   1.46            -50.53
                                                                    
 Argentina peso (parallel)                38        1.32            -49.39
                                                                    
    
    

 (Reporting by Susan Mathew in Bengaluru, Miguel Gutierrez in
Mexico City and Walter Bianchi in Buenos Aires; editing by
Jonathan Oatis)
  
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