October 19, 2018 / 8:04 PM / 10 months ago

EMERGING MARKETS-Latam stocks, FX headed for weekly gain; Mexico's peso weakens

    By Miguel Gutierrez and Susan Mathew
    Oct 19 (Reuters) - Latin American currency and stock indices
were on track to log weekly gains for a fifth straight week,
with most currencies firming on Friday, while stock markets
trimmed gains as the rally on Wall Street lost some momentum.
    The MSCI emerging markets Latin American currency index
 looked set to post a weekly gain of 0.7 percent,
while the stock index was on track for a 1.2
percent rise.
    On the day, however, Brazil's stock index gave up most of
its gains as the Nasdaq moved into the red and the S&P
500 steadied.
    While the dollar weakened against the euro, helping Brazil's
 real and the Argentine peso hold on to gains, it
firmed against some other emerging market currencies such as the
Mexican and Chilean pesos, after the latter saw a
surprise interest rate hike by the central bank on Thursday.

    The Mexican peso reversed course to hit its lowest in more
than a month. Analysts pinned the weakness on the outlook
downgrade by rating agency Fitch on state-owned petroleum
company, Pemex, as well as uncertainty introduced by the vote on
Mexico City's new airport scheduled for next week.
    Incoming president Andres Manuel Lopez Obrador, who says the
new airport has been tainted by corruption and will be more
costly than projected, plans to poll the public from Oct. 25 to
Oct. 28 to decide if the government should finish the airport or
upgrade a military air base to complement the existing hub.

    "The issue of the Mexico City airport referendum is starting
to receive a little bit more of attention which introduces a
little bit of uncertainty. So, that might have driven some
underperformance in the peso," said Kenneth Lam, a Latam FX
strategist at Citigroup.
    Regarding Fitch's downgrade of Pemex's outlook to 'negative'
from 'stable', the concerns is regarding its future commercial
strategy, said James Salazar, an analyst at CI Banco. 
    "So its finances should continue to be handled with great
caution so as not to cause additional imbalances that will
increase its debt. In this sense, it is imperative that the new
administration focus on continuing to clean up Pemex's finances
as far as possible to release cash flow," Salazar said.
    These issues come amid U.S. President Donald Trump
threatening to close the southern border if Mexico did not move
to halt the entry of migrant into the United State- an issue he
says is more important than the recent trade deal struck with
Canada and Mexico.   
    Brazil's assets rose as latest polls pointed to a victory
for market-preferred presidential candidate Jair Bolsonaro on
the Oct. 28 runoff against rival Fernando Haddad.
    Reports late Thursday of Brazil's central bank Governor Ilan
Goldfajn plans to step down by the year end seemed to have
little impact on the market.
    "Investors have a fairly positive view of the potential
Bolsonaro administration, and market has confidence that he will
appoint somebody credible to that job," Citigroup's Lam added.

    "At the end of the day, the market is pricing in a Bolsonaro
victory on the 28th and we do think there is additional room for
the real to outperform going into that event," he said.    
    Earlier this month, newspaper Folia de S. Paulo reported
that Bolsonaro could invite the head of global markets at
Santander Brasil to lead the central bank if
Goldfajn declined to stay.

    Key Latin American stock indexes and currencies at 1910 GMT:
 Stock indexes                 Latest    daily %      YTD %
                                          change     change
 MSCI Emerging Markets          971.23      0.03     -16.19
 MSCI LatAm                    2693.55     -0.14      -4.63
 Brazil Bovespa               83966.78      0.14       9.90
 Mexico IPC                   47289.42      0.56      -4.18
 Chile IPSA                    5119.66      0.01       0.01
 Argentina MerVal             28650.44      0.99      -4.71
 Colombia IGBC                12440.67     -0.58       9.41
 Currencies                              daily %      YTD %
                                          change     change
 Brazil real                    3.7100      0.36     -10.69
 Mexico peso                   19.2950     -0.76       2.09
 Chile peso                      680.5     -0.48      -9.68
 Colombia peso                 3076.05      0.45      -3.06
 Peru sol                        3.331      0.09      -2.82
 Argentina peso (interbank)    36.5200      0.36     -49.07
 Argentina peso (parallel)        36.5      2.05     -47.32
 (Reporting by Susan Mathew in Bengaluru;
Editing by Marguerita Choy)
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