EMERGING MARKETS-Latam currencies sink after Yellen remarks, stocks stable

Wed Mar 19, 2014 4:39pm EDT

(Recasts, updates prices, adds quotes)
    By Asher Levine
    SAO PAULO, March 19 (Reuters) - Latin American currencies
reversed early gains on Wednesday after U.S. Federal Reserve
chief Janet Yellen put investors on the lookout for higher
interest rates in the world's largest economy.
    The Federal Reserve on Wednesday said it could keep interest
rates at their current levels for "a considerable time" after
its bond-buying stimulus program ends. When asked in a news
conference to clarify, Yellen said it "means something on the
order of around six months."
    "The market reacted immediately when (Yellen) came out and
said there would be a six-month delay between when quantitative
easing ends and Fed funds go higher," said Kathryn Rooney Vera,
a strategist with Bulltick Capital Markets in Miami. "It seems a
little bit more hawkish than the market was expecting to see,
coming from someone as dovish as she is."
    Latin American currencies sank soon after Yellen's
statements in expectation that a sooner-than-expected increase
in U.S. rates would lead to an outflow of funds to U.S. assets.
    Brazil's real closed 0.32 percent lower against the
dollar, while Mexico's peso posted its biggest daily loss
in over six weeks.
    "We still see the peso as an outperformer in the emerging
markets context, on account of the reform momentum and the
economy's ties to the U.S.," wrote UBS analyst Rafael De La
Fuente in an investor note earlier on Wednesday. 
    "However, with the Fed tapering ongoing, and no major
reform-related foreign direct investment expected in the short
term, there is no clear catalyst for the currency to appreciate
strongly in the short term."
    Chile's peso saw a muted drop, weakening 0.15 percent
as dollar sales resulting from the expiration of unrenewed
currency forward contracts lent support.
    Colombia's peso, which ended trading before the Fed
announcement, notched its strongest rally in six months after
investment bank J.P. Morgan said on Wednesday that it will boost
the weighting of the country's peso-denominated debt in two
closely followed emerging market bond indexes. 
    The Colombian currency closed 1.02 percent higher at 2009.34
per dollar.
    Latin American nations are looking ahead at a period of
weaker regional currencies, while the widespread growth model
based on commodities exports is nearing a "plateau," an
International Monetary Fund official said on Wednesday.
 
    The region's stock markets had a mixed reaction to the Fed
statement and Yellen's comments, with the MSCI Latin American
stock index giving up early gains to trade flat.
    Brazil's Bovespa index held onto its 0.94 percent
gain, however, supported by a 3 percent advance in state-run oil
firm Petroleo Brasileiro SA and a 4.6 percent jump in
state-controlled lender Banco do Brasil SA.
    "Shares of state firms are a highlight today as there is
talk that electoral polls are showing opposition candidates
gaining on (incumbent President Dilma) Rousseff," said Rogerio
Oliveira, an equities specialist at brokerage ICAP in Sao Paulo.
    Many investors have been critical of the Rousseff
administration for heavy-handed government intervention in the
private sector and policies that run against the interests of
minority shareholders in state-controlled firms.
    Mexican shares were little-changed, while Chilean
stocks nearly erased the previous session's gains,
driven by a 2 percent drop in conglomerate Copec.

    Key Latin American stock indexes and currencies at 2009 GMT:

     Stock indexes                     daily %   YTD % change
                            Latest     change    
 MSCI Emerging Markets    947.66       -0.51     -5.01
                                                 
 MSCI LatAm               2911.8       -0.04     -8.99
                                                 
 Brazil Bovespa           46565.49     0.9       -9.59
                                                 
 Mexico IPC               38811.94     -0.01     -9.16
                                                 
 Chile IPSA               3633.66      -1.09     -1.77
                                                 
 Chile IGPA               17992.59     -0.86     -1.29
                                                 
 Argentina MerVal         5866.99      -0.28     8.83
                                                 
 Colombia IGBC            13029.02     0.02      -0.32
                                                 
 Peru IGRA                14455.76     -1.5      -8.24
                                                 
 Venezuela IBC            2588.21      0.29      -5.42
                                                 
                                                 
 Currencies                            daily %   YTD % change
                                       change    
                          Latest                 
 Brazil real              2.3480       -0.32     0.37
                                                 
 Mexico peso              13.273       -0.85     -1.83
                                                 
 Chile peso               568.5        0.09      -7.46
                                                 
 Colombia peso            2009.34      1.03      -3.85
 Peru sol                 2.813        0.00      -0.71
                                                 
 Argentina peso           7.9500       0.06      -18.33
 (interbank)                                     
                                                 
 Argentina peso           10.88        0.46      -8.09
 (parallel)                                      
                                                 
 
 

 (Additional reporting by Froilán Romero in Santiago and
Priscila Jordao in Sao Paulo; Editing by Paul Simao)
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