|Day's Range||103,913.50 - 105,044.50|
|52 Week Range||74,275.00 - 106,650.00|
With the dollar on the backfoot, the Mexican peso jumped 1% to touch a three-week high on Friday, while currencies of Brazil, Colombia, Chile and Argentina rose between 0.43% and 0.86%.
MSCI's index of Latin American stocks rose 1.6%, tracking gains in global stock markets after the world's two largest economies agreed to hold high-level talks in early October. Brazil's Bovespa index jumped 1.2%, boosted by gains in banking shares as central bank President Roberto Campos Neto said the economy should recover in the second half of year, most likely in the fourth quarter. Campos Neto also said inflation in Brazil is well-anchored over the short-, medium- and long-term horizons, giving policymakers room to reduce interest rates further.
(Bloomberg Opinion) -- When Brazil’s benchmark Ibovespa stock index reached a record on July 10, it was a milestone that few predicted. A 26% return over the previous year has made the country the top emerging market, beating 32 others that lost 7% collectively. The performance was even more impressive considering Brazil’s economy is barely growing at a 0.9% annual pace.Defying skeptics, Brazil is taking advantage of a rare sweet spot, benefiting from unprecedented favorable interest rates, retreating inflation and the trade war between the U.S. and China. While much of the world is focusing on thousands of fires in the Amazon and President Jair Bolsonaro’s response to them, Latin America’s largest economy and its historically malnourished shareholders are at a turning point.The growing appetite for stocks is buoyed by the lowest cost of money in modern times. Investors are starved for something more fruitful than debt’s diminished returns as global bond yields trend lower — or increasingly negative — and when the government is winning support for previously unpopular pension reforms, which would raise the retirement age for many Brazilians and curb obligations. The reforms are expected to bring savings of more than 900 billion reais ($227 billion) over a decade.“Pension funds in Brazil,” which habitually clipped coupons in the bond market because rates were so much higher, “will put more than $20 billion in equity markets in the next three years,” something “that’s never happened before,” Joao Luiz Braga said. He should know. His $550 million XP Long Biased fund returned 279% over the past five years, crushing the 60% from the Ibovespa. The bond market during this period returned 33% as measured by the Bloomberg Barclays Brazil Total Return Index.The changing investor behavior amounts to “a paradigm shift,” the 39-year-old Braga said during a “Buy Side” conference at Bloomberg’s Sao Paulo office earlier this month. The bonus of low worldwide interest rates during the anemic recovery from Brazil’s 2015-2016 recession “is a very, very, very good scenario” as rates in Brazil are likely to remain “low for a very long time,” he said.When Brazil’s central bank cut its benchmark rate to 6% in July, it was the nation’s lowest lending rate since such figures were collected in 1999 and well below any rate in preceding decades, according to data compiled by Bloomberg. The country of almost 211 million people has an improving profile with investors because its financing cost is the lowest on record and its growth is forecast to lead No. 2 Mexico and No. 3 Argentina in Latin America, with gross domestic product gains of 2.1% in 2020 and 2.5% in 2021, according to 35 economists surveyed by Bloomberg.While the same economists expect GDP to increase greater at first in Chile, Colombia and Peru, they predict Brazil will experience the most acceleration through 2021. Moreover, inflation in Brazil will remain below 4% until 2021 after falling more than half to 3.66% in 2018 from 2016, widening the advantage of its lower cost of living with the rest of Latin America to 5.3 percentage points, according to data compiled by Bloomberg.As the Amazon fires demonstrate, however, the political situation in Brazil — and the fires themselves — could change the trajectory of the economy. Bolsonaro, though, has shown no inclination to abandon his pro-development policies. Bolsonaro has drawn praise from U.S. President Donald Trump, whose trade war with China is working in Bolsonaro’s favor. Brazil’s exports to China increased 20% in April from the same month in 2018 while U.S. exports to China declined 26%, according to data compiled by Bloomberg. That’s part of a longer term trend. During the five years between 2013 and 2018, China’s annual imports from Brazil increased 43% to $76.9 billion while China’s imports from the U.S. increased 6% to $156 billion, according to data compiled by Bloomberg. At the same time, Brazil’s trade with the U.S. fell to $62 billion from $66 billion.Combine all those factors, and Brazil’s relative strength helps explain why its publicly traded companies are the top contributors to the MSCI Emerging Markets Index over the past 12 months and why debt issued by Brazil and its companies are second to China with a 19% total return among 86 emerging markets, according to data compiled by Bloomberg. Not since 2014 has global investor confidence in Brazil been so high, with $29 billion invested in Brazilian securities among the $3.4 trillion of U.S. exchange-traded funds. While the amount is relatively small, the number of shares held by these ETFs increased 26 times between 2015 and April, and the rally will most likely resume when the pension reforms become law.That will be just the latest data point in a growing preference for stocks in Brazil.“The Brazilian equity industry here is actually new,” Braga said. “I live by this advantage.”\--With assistance from Shin Pei.To contact the author of this story: Matthew A. Winkler at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Matthew A. Winkler is a Bloomberg Opinion columnist. He is the editor-in-chief emeritus of Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
World stocks will keep rising over the coming year, according to the latest Reuters polls of strategists, but wild gyrations are likely in the lift from expected central bank policy easing and drag from developments in the U.S.-China trade war. Fears of a global economic slowdown as the world's largest economies become more deeply locked in a tit-for-tat trade tariff war unnerved world stocks last year, with all the indexes polled by Reuters, barring India and Brazil, in the red in 2018. While stocks have recovered globally so far this year, the latest polls of nearly 300 equity strategists showed nine of the 17 indexes polled on would not recoup last year's heavy losses by end-2019.
Economic activity in Brazil fell slightly in the three months to June, a central bank indicator showed on Monday, suggesting Latin America's largest economy may have slipped into recession. The central bank's IBC-Br economic activity index, a leading indicator of gross domestic product (GDP), fell 0.13% in the second quarter, after a 0.68% drop in the three months to March. A recession is typically defined as two consecutive quarters of negative economic growth.
Brazil's currency and interest rate futures opened lower on Thursday, a day after the central bank kicked off an easing cycle with a sharper rate cut than most economists expected, while stocks rallied on the outlook for more stimulus ahead. The U.S. Federal Reserve also lowered its policy rate after some Brazilian financial markets closed on Wednesday, but played down the chances of a string of additional rate cuts, which boosted the U.S. dollar. Brazilian interest rate futures fell across the board on Thursday morning and the local currency, the real , weakened about 0.4%.
Most Latin American currencies extended gains on Friday after dovish signals from the U.S. Federal Reserve, with the Brazilian real holding at over three-month highs as investors welcomed progress in the government's pension reform bill. Brazil's markets have surged in recent days on prospects for the pension system overhaul, while signals from the Fed about potential interest rate cuts helped capital inflows into risky, emerging market assets. Speaker Rodrigo Maia said the lower house will try to conclude voting before the break for recess on July 18.
MSCI's Latin American currencies moved o.6% higher in line with emerging market peers as expectations of an interest rate cut by the Fed bodes well for developing market assets. The Mexican peso, which slid following the finance minister's abrupt resignation on Tuesday, gained 0.3%, but overhangs regarding the country's fiscal status kept investors nervous. All five of the Mexican central bank's board members agreed the slowdown in Mexico's economy had been larger than anticipated, with "signs of weakness" in the second quarter, minutes from the June 27 monetary policy meeting showed on Thursday.
The Brazilian real jumped 0.4%, its fourth straight day of gains that took the currency to over a four-month high, although the Bovespa stock index retreated from a record high set in the previous session. Brazil's markets have rallied this week as investors draw comfort from progress in the government's efforts to overhaul the pension system, a cornerstone of President Jair Bolsonaro's economic agenda aimed at saving the public purse around 1 trillion reais ($263 billion) over the next decade. House Speaker Rodrigo Maia said he hoped the complete bill could be put to a second, final vote by Friday or early Saturday.
Regional currencies lost between 0.03% to 0.7%, with Brazil's real slipping from three-month highs hit last session, as the dollar climbed 0.5%. "It (jobs data) reduces the scope for a 50bp cut this month, though does little to alter the easing narrative linked to the Fed," strategists at TD Securities wrote in a note. Brazil's real fell 0.4% after a strong rally on Thursday spurred by the government's pension reform bill clearing a key congressional hurdle, which paved the way for it to be put to a lower house plenary vote before the parliament breaks for recess.
The dollar index, which measures the greenback against a basket of six major currencies, was up 0.5% after data showed that U.S. job growth rebounded strongly in June as government hiring surged. "The results were really encouraging and reinforced the underlying strength of the U.S. market and the U.S. economy in general, and is likely to help to temper the markets' aggressive calls for easier policy from the Federal Reserve," said Candice Bangsund, asset allocation manager at Fiera Capital in Montreal. The Brazilian real fell 0.7% after touching its strongest level in more than three months on Thursday after the government's pension reform bill cleared a key congressional hurdle.
Markets are hoping that International Monetary Fund head Lagarde will maintain the ECB's recent dovish tone, which was echoed by the U.S. Federal Reserve, and had spurred inflows into riskier assets last month. "People think that Lagarde will be more dovish," said Gustavo Rangel, chief economist, LATAM at ING, adding that general expectations of a more support from the ECB and Fed are driving the market on the day.
Most Latin American currencies rose on Wednesday as optimism over U.S.-China trade talks offset weakness after the U.S. Federal Reserve dampened hopes of aggressive interest rate cuts. U.S. Treasury Secretary Steven Mnuchin said on Wednesday that the United States and China were close to a trade deal, CNBC reported ahead of meeting this week between presidents Donald Trump and Xi Jinping at the G20 Summit. The news turned around weakness in Latin American assets after comments from Fed policymakers on Tuesday pushed investors to trim expectations of a half-point cut in interest rates in a policy meeting next month.
The Brazilian real edged lower for a second day, while the Mexican peso hovered near two-week lows even as the greenback touch new lows against a basket of major currencies. Minutes from the Brazilian central bank's June policy meeting showed the economy is stagnating and uncertainty surrounding economic and fiscal reforms is clouding the growth and inflation outlook. "BCB minutes emphasize that pension reform is the prerequisite for any easing," Citi analyst Dirk Willer wrote in a note.