Oct 19 (Reuters) - Latin American currencies steadied against the dollar as markets digested much-anticipated comments on interest rates from Federal Reserve Chair Jerome Powell, though most stock indexes barring Brazil's Bovespa fell in tandem with global equities.
- Markets have mixed reaction to Powell’s speech
- Venezuela’s bonds surge after U.S. trading ban lifted
- Brazil readies currency hedging tool to boost FDI
- Latam stock indexes barring Brazil in the red, FX index up 0.2%
MSCI’s index for Latin American currencies rose 0.2%, with Brazil’s real gaining 0.2% and Chile’s peso gained 0.3%, while Mexico’s peso dropped 0.3%.
The dollar slipped as investors interpreted comments on U.S. interest rates from Powell, who said that further rate increases could be warranted while noting recent market-driven increases in bond yields have helped to “significantly” tighten overall financial conditions.
“Ultimately today was just another day of Powell being a very cautious guy, but still exuding enough confidence in the American economy to say (that) things are resilient enough that we are going to keep rates (higher) for longer,” said Juan Perez, director of trading at Monex USA.
Most countries in South America had began monetary tightening much earlier than the Fed, and have started cutting interest rates this year, thereby narrowing rate differentials and the ability to attract more inflows.
“Powell’s statement is very telling that (the Fed) is not planning to cut interest rates anytime soon, meanwhile, the economies of Brazil, the economies of Chile, have enough of a need to stay healthy that those central banks are not going to hesitate in cutting rates,” said Perez.
Brazil’s Bovespa was the sole bright spot among the region’s major bourses, lifted mainly by financial stocks. The government is preparing to introduce currency hedging instruments this year to attract more long-term investments from abroad, Finance Minister Fernando Haddad told Reuters, in an effort to reverse slumping foreign direct investment (FDI).
However, most Latin American stock indexes fell along with other global indexes as Powell’s comments did little to push U.S. benchmark Treasury yields off 16-year highs.
Venezuela’s sovereign bonds rallied, a day after the United States lifted its ban on secondary market trading of some of the country’s eurobonds, with investors eyeing a debt restructuring on some $60 billion of defaulted debt.
“Funds will use this as an opportunity to get in because they want further exposure, and also because their positions have obviously doubled over the last 24 hours,” said Edward Cowen, CEO of Winterbrook.
South American stocks turned lower in late trading, with the broader index about flat. Colombia’s Colcap was flat and Mexico’s benchmark index fell 0.7%.