Trade optimism lifts Latam markets; Brazil cheers stimulus

Latin American markets rose on Wednesday as optimism from US-China trade talks offset concerns of slowing global growth, while a new policy to control Brazil's fiscal woes and provide stimulus to the economy boosted sentiment.

White House economic adviser Larry Kudlow said on Tuesday it was a good sign that top US officials would travel to China to discuss reviving stalled trade talks.

The latest impact of the protracted trade war was reflected in the weak manufacturing PMI data from Eurozone, Japan and the United States earlier in the day, which increased bets for the European Central Bank to signal interest rate cuts on Thursday.

MSCI's index of Latin American stocks and currencies rose with Brazilian assets gaining after the government's latest move to cut worker protections and boost job creation.

Brazil's Presidential Chief of Staff Onyx Lorenzoni said that workers will now be able to withdraw up to 500 reais ($132.00) from their FGTS - a severance fund designed for employees to prevent firms from firing them.

The Economy Ministry said the workers' fund will boost its gross domestic product by 0.35 percentage points over the next 12 months.

The announcement comes after President Jair Bolsonaro's government said the fund had made businesses unwilling to hire, thus increasing unemployment in an already fragile economy.

"It's a relatively small-scale package but it's one more measure that should help in accelerating the process of stimulating the economy," said Gustavo Rangel, chief economist for Latin America for ING.

Brazil's economy is struggling to emerge from a crippling recession with Bolsonaro's government focused on passing a key pension overhaul that is expected to prop up public finances and kick-start growth.

The general optimism drove down the cost of insuring exposure to Brazil's sovereign debt to a five-year low.

Among stocks, Brazil's card processor Cielo SA jumped 12% to the top of the Bovespa after reporting quarterly results. Its chief executive said the company would be more competitive if it had its own sources of funding to finance merchants.

However, Vale's shares fell over 2% after the miner was authorized to partially resume dry processing operations at its Vargem Grande complex, raising concerns about oversupply of iron ore.

Mexican stocks gained higher while the peso broke a three-day losing streak after data showed consumer prices rose 0.27% during the first half of July, slightly beating expectations.

Grupo Mexico rose 3% after the mining and transport firm reported a net profit of $490.9 million for the second quarter, up 21.9% from the same period last year.

Argentina's peso was the prominent loser, down 0.9% after ratings agencies Moody's said the country's weak economy and policy uncertainty pose risks.

This comes a day after the IMF said it expected a slightly deeper-than-expected recession in Argentina in 2019 and a slower recovery in 2020.