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(Bloomberg) -- Brazil’s Senate concluded its first floor vote on a pension reform proposal that was weakened by a last-minute change, reducing the impact of President Jair Bolsonaro’s main initiative to tame a rising debt load.Senators approved legislation that toughens access to retirement benefits by a tally of 56 to 19. In subsequent votes on bill amendments, they also backed a proposal to maintain an annual bonus to low-income workers that will reduce the reform’s estimated savings by 70 billion reais to about 800 billion reais ($192 billion) over a decade.The proposal that sets a minimum retirement age now moves on to a second and final Senate floor vote later this month, which is the final step before becoming law. The measure is key to restoring investor confidence in Brazil’s finances, although it won’t stabilize the country’s debt as a portion of gross domestic product before 2023, according to official estimates. Brazil’s public debt currently reaches nearly 80% of GDP and is estimated to grow to as much as 83% of GDP over the next four years before stabilizing, if the reform is approved.Luiz Eduardo Ramos, government affairs secretary, told reporters in Brasilia that the administration views the vote as a victory. He highlighted the fact that most of the amendments were rejected.“I was asked if I have an official position on the defeat we suffered,” he said. “The question does not have any basis. What defeat is that?”Stock MarketStill, many investors were less upbeat. Brazil’s benchmark Ibovespa stock index fell as much as 3% in Wednesday trading, marking the biggest intraday drop in over a month, while swap rates rose as investors worried about the gradual reduction in savings from the reform.“The weakened reform is bad news,” said Vladimir do Vale, chief strategist at Credit Agricole Brasil. “The government has an ambitious agenda in Congress, and again it’s showing a lack of political coordination.”Advances in economic reforms including the pension overhaul have facilitated a monetary easing cycle by removing uncertainty that could boost the country’s risk premia. Brazil’s central bank last month lowered the benchmark interest rate to an all-time low of 5.5% and signaled more cuts are on the way amid an improved inflation outlook and a gradual economic recovery.\--With assistance from Josue Leonel and Flavia Said.To contact the reporters on this story: Samy Adghirni in Brasilia Newsroom at firstname.lastname@example.org;Simone Iglesias in Brasília at email@example.comTo contact the editors responsible for this story: Walter Brandimarte at firstname.lastname@example.org, ;Juan Pablo Spinetto at email@example.com, Matthew MalinowskiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
LATAM's surge saw Chile stocks jump up to 2.5% during the session and hit their highest in almost five months, outperforming regional peers. Delta bought 20% of LATAM for $1.9 billion in a major new airline partnership, but also sold its stake in Brazil's largest airline Gol, which sent shares 6.5% lower followed closely by Gol's loyalty program, Smiles Fidelidade, which slid 5.3%.
Mexico's main stock index dipped 0.2%. The country's central bank cut the benchmark interest rate by 25 basis points for a second time this year, to 7.75%. "It's bit on the dovish side, which means there are more cuts ahead, which is reasonable," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman.
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.
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.