July 18, 2019 / 8:33 PM / a month ago

EMERGING MARKETS-Latin American currencies rally on dovish Fed comments

 (Updates prices)
    By Sruthi Shankar
    July 18 (Reuters) - Latin American currencies rose on
Thursday as the dollar fell, with the Brazilian real also
hitting four-month highs on optimism over the country's pension
reform.
    The dollar fell after New York Federal Reserve chief John
Williams said policymakers need to add stimulus early to deal
with too-low inflation when rates are near zero.

    Markets read that as a strong argument in favor of action by
the Fed to cut rates this month. Prospects of major central
banks cutting interest rates have encouraged capital inflows
into risky, emerging market assets this year. 
    Brazil's real firmed as much as 3.7217 per dollar,
its strongest level since Feb. 28, while the Bovespa stock index
 added 0.7%, extending a rally in the recent months ahead
of anticipated congressional passage of the pension reform.

    "The market has fully priced in pension reform. What I don't
think is priced in for the Brazilian markets is the rest of the
reform agenda - be it with regards to tax reform, privatization,
liberalizing financial markets, banking sectors," said Abbas
Ameli-Renani, emerging markets portfolio manager at Amundi.
    "If we start seeing meaningful signs of the administration
showing potential, that's where we could get the next leg of
strong performance in Brazilian assets."
    Investors looked for further policy directions from
President Jair Bolsonaro's government, which promised an
economic stimulus package this week to revive growth.
    The announcement came days after the lower house of Congress
approved the first round of voting for the pension reform bill,
seen as a critical step to restoring health to public finances
and boosting investor confidence.
    The broader optimism helped the Mexican peso up 0.6%,
while the Colombian and the Argentine pesos gained
about 0.3%. 
    The Mexican peso has come under pressure this week as a
keenly awaited business plan to revive the heavily indebted
state-owned oil firm Pemex failed to excite investors, raising
concerns about a Moody's downgrade following a Fitch downgrade
on its bonds to junk status. 
    Credit rating agency Moody's said on Thursday it would
downgrade Pemex's debt in 2019 if its performance was worse than
expected.
    Stocks in Mexico were dragged down by a more than 9%
loss for conglomerate Alfa SAB de CV after its poor
quarterly results.  
    Stocks in Colombia and Argentina fell over
1.5%, weighed down by energy companies as oil prices slumped.

    Latin American stock indexes and currencies at 1944 GMT
    
 Stock indexes                       daily %
                            Latest    change
 MSCI Emerging Markets      1053.69    -0.11
                                     
 MSCI LatAm                 2944.50     0.65
                                     
 Brazil Bovespa           104622.39     0.74
                                     
 Mexico IPC                41605.33    -2.22
                                     
 Chile IPSA                 5039.72     0.16
                                     
 Argentina MerVal          40756.87    -1.68
                                     
 Colombia IGBC             12832.00    -1.53
                                     
                                            
 Currencies                          daily %
                                      change
                             Latest  
 Brazil real                 3.7293     0.82
                                     
 Mexico peso                18.9520     0.58
                                     
 Chile peso                     684    -0.29
                                     
 Colombia peso              3172.29     0.26
                                     
 Peru sol                     3.286     0.06
                                     
 Argentina peso             42.4200     0.27
 (interbank)                         
                                     
 
    

 (Reporting by Sruthi Shankar in Bengaluru;
Editing by Susan Thomas)
  
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