October 10, 2018 / 3:13 PM / 2 months ago

EMERGING MARKETS-Brazil's real, Argentine peso snap winning streaks

    By Susan Mathew
    Oct 10 (Reuters) - The Argentine peso and the Brazilian real
snapped recent rallies on Wednesday, with the real sliding after
federal prosecutors started a probe into allegations of fraud
against the economic adviser of leading presidential candidate
Jair Bolsonaro.
    Federal prosecutors are investigating allegations that
Bolsonaro's chief economic policy adviser, Paulo Guedes, took
part in fraud linked to the pension funds of major state-run
companies, a prosecutor told Reuters.
    The real weakened about 1 percent to 3.75 against the
dollar. It was the currency's first decline after its longest
rally since November, 2011, seven sessions of increases fueled
by investor optimism that Bolsonaro would win the elections.
    "I don't think global investors find the news a surprise. At
the end of the day, I'm very skeptical if Bolsonaro can make any
kind of a difference, especially with respect to the bigger
global forces that are impacting capital flows," said Peter
Cecchini, chief market strategist at Cantor Fitzgerald in New
York.
    "I would bet from here that real weakens back to 4."
    One of Bolsonaro's campaign promises is to tackle the cost
of the country's pension system, with help from Guedes.
    Brazil's stock exchange fell 1.8 percent, led by a
14 percent drop in Eletrobras after Bolsonaro said he
was not willing to sell state power generation assets.

    Argentina's peso dropped more than 1 percent,
snapping a three-day rally as the central bank sold billions of
pesos in short-term debt called "Leliqs" at sky-high rates
hoping to drain liquidity and limit demand for U.S. dollars.
    Economists are concerned about high rates and see the
issuance of the new notes as a risky maneuver that could
backfire and saddle the bank with too much debt.   
  
    The Leliq sales were undertaken after recession-weary
Argentina struck a funding deal with the International Monetary
Fund, also aimed at plugging the peso's free-fall. Despite a
more than 9 percent gain in the past seven sessions, the peso
has lost half its value against the dollar this year.
    Mexico's peso declined for a third straight session
and stood at 19.1593 per dollar. Concerns over Italy and fears
of an escalating U.S.-China trade war has frightened investors
avoiding riskier assets.
    "The depreciation of the peso is not due to domestic factors
in Mexico, but to risk aversion at the international level that
causes changes in investment positions," analysts at Banco Base
said in a note.
    "In the short term it is likely that the exchange rate will
continue to rise towards the level of 19.20 pesos per dollar,
key resistance of last week."
    
    Key Latin American stock indexes and currencies at 1435 GMT:
 Stock indexes                         Daily %    YTD %
                                        change   change
                             Latest             
 MSCI Emerging Markets         993.99    -0.15    -14.2
                                                
 MSCI LatAm                   2753.90     0.21    -2.63
                                                
 Brazil Bovespa              84528.93    -1.81    10.64
                                                
 Mexico IPC                  48289.43    -0.44    -2.16
                                                
 Chile IPSA                   5247.77    -1.13    -1.13
                                                
 Argentina MerVal            29350.28    -0.89    -2.38
                                                
 Colombia IGBC               12466.94    -0.32     9.64
                                                
                                                       
 Currencies                            Daily %    YTD %
                                        change   change
                                                
                               Latest           
 Brazil real                   3.7524    -1.12   -11.70
                                                
 Mexico peso                  19.1067    -0.36     3.10
                                                
 Chile peso                     683.4    -0.44   -10.06
                                                
 Colombia peso                3087.15    -0.88    -3.41
 Peru sol                       3.328    -0.06    -2.73
                                                
 Argentina peso (interbank)   37.3700    -0.62   -50.23
                                                
 Argentina peso (parallel)      37.25     0.67   -48.38
                                                
 
 (Reporting by Susan Mathew and Sruthi Shankar in Bengaluru;
Editing by David Gregorio)
  
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