Jan 5 (Reuters) - Latin American assets advanced on Friday as the U.S. dollar and the Treasury yields erased gains after data showed a slowdown in the U.S. services sector that indicated the Federal Reserve might consider early rate cuts.
- Brazil’s industrial output rises
- Chile central bank considered 50 or 75bps rate cut in December
- Stocks up 1.5%, FX up 0.8%
The MSCI index tracking Latin American stocks .MILA00000PUS was up 1.5% at 1559 GMT, while a basket of regional currencies .MILA00000CUS rose 0.8% against a weaker dollar.
Both indexes are set for their best day since Dec. 19 if gains hold.
The U.S. services sector slowed considerably in December, with a measure of employment dropping to the lowest level in nearly 3-1/2 years, a survey showed on Friday.
The Institute for Supply Management (ISM) said that its non-manufacturing PMI fell to 50.6 last month, the lowest reading since May, from 52.7 in November.
“ISM could be used by the Fed as evidence that they may need to consider cuts if this trend remains on losing jobs in services,” said Juan Perez, director of trading at Monex.
The dollar index =USD and U.S. 10-year Treasury yields gained after a robust U.S. jobs report, but the dollar reversed course to fall 0.3% and yields fell below the 4% mark after the service sector data.
However, the broader Latam stocks and currencies indexes were set to log weekly declines of 1.8% and 0.1% respectively.
Latam assets had a robust end to 2023 prompted by the Fed’s dovish stance.
But 2024 did not start so well as investors’ expectations for early rate cuts waned after the December Fed meeting minutes failed to offer any timeline for policy easing.
Among regional bourses, Brazil’s Bovespa index .BVSP jumped 1.0%, while Mexican shares .MXX rose 0.5%.
Colombia’s Colcap index .COLCAP jumped 1.6%, leading broader equity gains.
On the data front, industrial production in Brazil rose for the fourth consecutive month in November, exceeding market forecasts, while Brazil’s government debt as a share of gross domestic product (GDP) dropped to 73.8% in November, below the 75% of GDP that economists had expected, polled by Reuters.
Brazil’s real BRL= climbed 0.5%, while Mexico’s peso MXN= advanced 0.8%.
Chile’s central bank evaluated lowering the benchmark interest rate by either 50 or 75 basis points at its December meeting, but decided for the deeper reduction as conditions had not “substantially changed” from its previous report, the meeting minutes released on Friday showed.
“I see the Chilean central bank as particularly cautious in its handling of monetary policy. This caution cannot be assigned to a dynamic internal demand or questioning the clear inflationary slowdown,” said Jorge Selaive, chief economist of Chile at Scotiabank.
The Chilean peso CLP= was little changed, while the Colombian peso COP= advanced 1.0%.
Reporting by Siddarth S in Bengaluru Editing by Mark Potter
