Latam markets subdued as dollar strength, geopolitical caution weigh

By Ragini Mathur

Latin American markets were subdued on Monday, with several bourses closed for public holidays, as investors assessed a brief flare-up in U.S.-Iran hostilities and signs that a fragile Middle East ceasefire was holding.

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, according to a source, 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. Markets were also digesting a stronger dollar and the prospect that resilient U.S. growth could keep Federal Reserve interest rates elevated for longer.

The dollar was on course for its biggest monthly gain in nearly a year, although it edged lower on Monday.

MSCI's Latin American currencies index (.MILA00000CUS) was little changed, 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 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, markets were muted. The benchmark Bovespa stock index BMFBOVESPA:IBOV and the real FX_IDC:USDBRL slipped 0.3% and 0.1%, respectively.

Mexico's main stock exchange suspended trading on Monday morning because of a technical issue, a spokesperson told Reuters. The peso FX_IDC:USDMXN edged 0.2% lower.

In Venezuela, residents of Caracas woke up on Monday to an aftershock that shook homes, following last week's powerful earthquakes.

The strongest tremors to hit the country in more than a century have added another layer of uncertainty to an already fragile 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.

The regional stock gauge (.MILA00000PUS) fell 0.3%, 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 2.9 cents after the preliminary deal to bid at 108.423 cents on the dollar, their highest level since January, Tradeweb data showed (XS1151974877=TE). Key Latin American stock indexes and currencies at 1513 GMT: