November 15, 2019 / 2:39 PM / 20 days ago

EMERGING MARKETS-Chile markets zoom on constitution deal, Mexican peso up

    By Susan Mathew
    Nov 15 (Reuters) - Chilean stocks catapulted nearly 7% and
the country's currency looked poised for its best day in more
than 10 years on Friday after lawmakers agreed to hold a
referendum to replace a dictatorship-era constitution. 
    The stock index inched closer to posting its
biggest one-day gain in 11 years, while the currency
jumped 3% to 781.22 per dollar.
    The currency has lost 11.4% since Oct. 21, when protesters
turned to vandalism after a hike in public transport fares
sparked a wider unrest regarding economic inequality in one of
Latin America's most stable nations. The currency has been in a
free-fall over the last six-sessions when it breached 800 to
dollar.
    Bowing one of the demands, lawmakers signed an agreement to
hold a referendum next April where voters will be asked whether
they approve the idea of a new constitution and whether current
lawmakers should serve on the commission that would redraft the
document.
    "It is a positive step politically and should help defuse
the discontent amongst the great majority of the peaceful
protesters," said Citigroup emerging market strategists Dirk
Willer and Kenneth Lam. 
    "Given how long the process will be, and how oversold CLP
is, we believe this is short-term CLP positive. In the medium
term, there are major (fiscal) risks from the new constitution,
but that is for another day given the long time line."
    The sentiment spread through the region, with the Colombian
peso jumping 1% after five sessions of losses against a
steady dollar.
    Mexico's peso rose 0.6% to extend gains after the
central bank's 25 basis points interest rate cut on Thursday was
less aggressive than some had feared.
    While the bank gave little reason to believe that they will
not continue a 25 basis point per meeting easing path, "we
continue to believe that an increment to a 50bps pace of easing
will remain off the table for now," said Sacha Tinhayi, deputy
head of EM strategy at TD Securities.
    "The central bank's still obvious concern with the peso's
stability, and the risks to passing depreciatory shocks through
to inflation... suggests that policy makers will be very
selective of when they increment easing momentum, if at all."
    The moves were also in line with an uptick in global
sentiment on a return of optimism around a phase one U.S.-China
trade deal being struck. White House advisor Larry Kudlow said
aid the two sides were getting close to an agreement and that
"the mood music is pretty good". 
    Financial markets in Brazil were closed for a local holiday.
    
    Key Latin American stock indexes and currencies at 1420 GMT:
    Stock indexes             Latest    Daily %
                                         change
 MSCI Emerging Markets         1047.81      0.53
                                        
 MSCI LatAm                    2678.25      0.74
                                        
 Mexico IPC                          -         -
                                        
 Chile IPSA                    4775.82      6.16
                                        
 Argentina MerVal                    -         -
                                        
 Colombia IGBC                       -         -
                                        
                                                
       Currencies             Latest    Daily %
                                         change
 Mexico peso                   19.2097      0.54
                                        
 Chile peso                      781.1      2.91
                                        
 Colombia peso                 3415.77      1.02
 Peru sol                       3.3718      0.45
                                        
 Argentina peso                59.6900      0.03
 (interbank)                            
                                        
 
 (Reporting by Susan Mathew in Bengaluru;
Editing by Nick Zieminski)
  
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