October 31, 2017 / 3:36 PM / a year ago

EMERGING MARKETS-Brazil, Mexico currencies head for large October losses

    By Bruno Federowski
    SAO PAULO, Oct 31 (Reuters) - The Brazilian and Mexican
currencies seesawed on Tuesday but still headed for their worst
monthly declines in around one year on politically-driven
    The Mexican peso was set to lose the most in the
region in October, weighed down by concerns over future trade
ties between Mexico and the United States.
    Increasingly strict demands from U.S. President Donald Trump
have fostered concerns that Trump may follow through on his
threats to scrap the North American Free Trade Agreement
(NAFTA). That could have dire consequences for Mexico, which
sells over three-quarters of its exports to the United States.
    Nevertheless, some are still hopeful that the negotiations
will reach an agreement. In a client note, strategists at
Societe Generale said the peso offered "good value" and is
around 13 percent below fair price.
    "Our base case scenario is that a compromise on NAFTA will
ultimately be reached and even if the pendulum of trade
competitiveness shifts in the favour of the US, the peso would
recover sharply," they said.
    The peso firmed 0.39 percent on Tuesday, briefly paring
gains after data showed the Mexican economy likely shrank for
the first time in more than four years in the third quarter due
to the effects of earthquakes and hurricanes in September.

    Economists minimized the contraction due to the influence of
one-off items. Economists at Continuum Economics highlighted,
however, that upward revisions to past figures could limit the
space for the central bank to cut interest rates going forward.
    "Banxico may need to remain in its current contraction
stance for much longer and even add some tightening if inflation
fails to fall fast enough," they wrote.
    The Brazilian real looked set to post its worst
monthly loss since November, battered by concerns that President
Michel Temer could fail to implement belt-tightening reforms
needed to curb growth of public debt.
    Temer saw his support among lawmakers decline after facing
corruption charges and is now struggling to pass a bill
streamlining the social security system. 
    The nation's benchmark Bovespa stock index slipped
xx percent, but a rally in shares of payment processor Cielo SA
 helped to curb losses.
    Stronger-than-expected quarterly results caught many traders
by surprise. Many had bet against Cielo due to growing
competition from  traditional banks like Banco Bradesco SA
 and fintech start-ups like Nubank.
    Key Latin American stock indexes and currencies at 1720 GMT:
 Stock indexes                                daily %   YTD %
                                     Latest    change  change
 MSCI Emerging Markets               1119.61     0.37   29.37
 MSCI LatAm                          2818.35    -0.39   20.88
 Brazil Bovespa                     74757.90    -0.06   24.13
 Mexico S&P/BVM IPC                 48816.63    -0.08    6.95
 Chile IPSA                          5584.68    -0.43   34.53
 Chile IGPA                         27988.35     -0.4   34.99
 Argentina MerVal                   27437.48     0.12   62.18
 Colombia IGBC                      10655.68    -0.34    5.21
 Venezuela IBC                        685.73     0.44  -97.84
 Currencies                                   daily %   YTD %
                                               change  change
 Brazil real                          3.2746     0.20   -0.78
 Mexico peso                         19.1610     0.39    8.26
 Chile peso                            636.2     0.39    5.42
 Colombia peso                       3040.27    -0.60   -1.28
 Peru sol                              3.247     0.06    5.14
 Argentina peso (interbank)          17.6650     0.20  -10.13
 Argentina peso (parallel)             18.07     0.44   -6.92
 (Reporting by Bruno Federowski; Editing by Nick Zieminski)
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