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Markets

Real up as Brazil, US reinforce trade ties; China data lifts mood

  • Brazilian real breaks four-day losing streak.
  • Brazil GDP to shrink 4% this year –officials.
  • China's economic recovery quickens as consumption returns.
  • Bolivia's socialists seal comeback win after tumultuous year.
20 Oct 2020

The Brazilian real firmed on Monday after the United States and Brazil agreed on steps to facilitate trade and investment in Latin America's biggest economy, while other currencies in the region were lifted by encouraging data from China.

The real gained 0.6%, to rise for the first in five days after Brazilian President Jair Bolsonaro announced, at a virtual summit organized by the US Chamber of Commerce, the three agreements to ensure good business practices and to stop corruption.

Brazil's economy minister, Paulo Guedes, said the economy will shrink by 4% this year, less than the government's official forecast of a 4.7% decline, reiterating that this year's emergency public spending will not morph into "inexcusable" permanent spending in coming years.

The news soothed some worries about the Brazilian government's ability to fund a new fiscal program without overshooting its spending cap.

"There is room for fiscal risk premia to compress in BRL, though the risk is high that the rally runs out of steam as 2021 progresses, given the large fiscal drag hitting growth hard," emerging markets FX strategists at J.P. Morgan wrote in a note.

Data from China showed the country's economic recovery accelerated in the third quarter as consumers shook off their coronavirus caution.

China's gross domestic product (GDP) grew 4.9% in July-September from a year earlier, slower than the 5.2% forecast by analysts in a Reuters poll but faster than second quarter's 3.2% growth. The country remains the biggest importer of Latin American agricultural and metal products.

"Market sentiment is lifted by solid economic data out of China. While the GDP numbers for the third quarter missed expectations, industrial production and retail sales figures are still pointing to a healthy recovery," said Milan Cutkovic, Market Analyst at Axi.

The Mexican peso slipped 0.5%, with a Reuters poll showing domestic annual inflation rate has likely accelerated slightly in the first half of October, thanks to higher prices for electricity, gasoline as well as fruit and vegetables.

Colombia's peso pared gains after data showed its economy contracted 10.6% in August compared to the same month a year earlier.

Bond market brokers marked up prices on some of Venezuela's battered debt more than four-fold after a US judge dealt a major blow to opposition leader Juan Guaido's efforts to have the bonds at the center of the dispute declared invalid.

The bonds belong to Venezuelan state oil company Petroleos de Venezuela (PDVSA), backed by half of the shares of the parent company of the firm's US refining arm, Citgo Petroleum, and have been languishing at just over 10% of their face value after severe US sanctions on Venezuelan debt. []

Bolivia's socialists all but sealed a dramatic election comeback after their centrist rival Carlos Mesa conceded the vote, with several unofficial vote counts giving the party of ousted leader Evo Morales an unassailable 20 percentage-point lead.