Latam markets subdued as dollar strength, geopolitical caution weigh

By Ragini Mathur and Purvi Agarwal

Most Latin American assets were subdued on Monday, with several bourses closed for public holidays, as investors weighed a brief flare-up in U.S.-Iran hostilities against signs that the fragile Middle East truce was holding firm.

Iranian and U.S. technical teams working on the implementation of an interim peace deal are expected to meet in Doha in the coming days, a source said, after tit-for-tat weekend strikes threatened to unravel the accord.

The easing in tensions offered some relief to investors, though caution persisted across risk assets. Still, the dollar index TVC:DXY slipped 0.3%, reversing gains from earlier in the session.

Resilient U.S. growth and rising prospects of higher-for-longer interest rates in the U.S. kept the dollar at 13-month highs and on course for its biggest monthly gain in nearly a year.

Most LatAm currencies were subdued, with MSCI's regional currencies index (.MILA00000CUS) flat, but remained headed for monthly and quarterly losses.

"Key drivers for LatAm are interest rates, commodity prices, local elections, and U.S. conditions," said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.

Commodity-linked currencies of the region remain exposed to swings in oil and metal prices, while election calendars are sharpening scrutiny of fiscal policy, reform prospects and institutional risk.

Bolivia was in focus after announcing on Friday that it would adopt a flexible exchange-rate system, effectively devaluing its currency by ending a 15-year dollar peg.

The central bank published the exchange rate at 9.73 per dollar, for a 29% devaluation of the official exchange rate.

The move is part of a broader effort to normalize currency markets and restore investor confidence as Bolivia negotiates a financing program worth at least $2.5 billion with the International Monetary Fund and grapples with an acute shortage of dollars.

In Brazil, the region's largest economy, the Bovespa stock index BMFBOVESPA:IBOV and the real FX_IDC:USDBRL slipped 0.1% each.

Brazil's government unveiled another initiative aimed at renegotiating consumer debt, this time targeting borrowers who are up to date on their payments.

Mexico's main stock exchange suspended trading on Monday morning for two hours, which the bourse later said was not caused by the failure of its trading engine. It was up 0.9%, with gains across broader sectors. The peso FX_IDC:USDMXN edged 0.2% higher.

In Venezuela, residents of Caracas woke up to an aftershock following last week's powerful earthquakes, adding another layer of uncertainty to a fragile market backdrop marked by debt restructuring and political risks.

The Caracas stock exchange was closed for the day. Markets in Colombia, Chile and Peru were also shut for public holidays.

Colombian assets rallied before the results of its presidential election where right-wing outsider Abelardo De La Espriella won by a narrow margin last week.

"While there are reasons to be constructive on the upcoming administration, the market is pricing an overly optimistic view on Colombia's fundamentals, particularly on the fiscal front," said analysts at Deutsche Bank.

The regional stock gauge (.MILA00000PUS) was little changed, leaving it on track for a monthly decline. It was also headed for a quarterly loss, which would end a five-quarter winning streak.

Beyond Latin America, Ethiopia struck a preliminary deal with key bondholders to restructure its defaulted $1 billion international bond.

Ethiopia's bonds jumped 3 cents after the preliminary deal, to bid at 109.303 cents on the dollar, their highest level since January, Tradeweb data showed (XS1151974877=TE).

Key Latin American stock indexes and currencies: