Trade optimism lifts Latam currencies

Signs of progress in US-China trade talks helped most Latin American currencies firm on Friday, with Mexico's peso set to record its fourth straight week of gains amid optimism over a revamped trade deal with the United States and Canada. The peso rose 0.3% to 19.06 per dollar, it strongest level in nearly three months, while the Brazilian real, the Colombian peso rose 0.8% and 0.3%, respectively.

A senior Mexican official said the country expects US lawmakers to soon begin the formal process of approving the United States-Mexico-Canada trade deal now that President Andres Manuel Lopez Obrador has promised wage increases and funding for labour reforms. The USMCA, signed last year, must win approval in a divided US Congress where Democrats have voiced concerns over the agreement, including its labour and enforcement provisions.

Adding to overall optimism, the US Trade Representative's office said US and Chinese trade officials were "close to finalizing" some parts of an agreement. US President Donald Trump has said he hopes to sign the deal with China's President Xi Jinping next month at a summit in Chile.

"At the height of trade escalation and uncertainty over the summer, the bias of the market seemed to be towards concern and defensiveness," Morgan Stanley's Hans Redeker wrote in a client note. The real was set to post gains of more than 2.5% for the week, mainly driven by the Brazil Senate's final approval of a pension reforms bill. Investors will closely watch the central bank meeting next week, with expectations of a deep interest rate cut running high after a series of weak data.

One of the most keenly monitored events in Latin America over the weekend will be general elections in Argentina on Sunday, with populist-leaning candidate Alberto Fernandez expected to breeze past business-friendly President Mauricio Macri. Argentina's battered peso weakened 0.3%, even after the central bank intervened heavily to ease its fall. The peso crashed in August when Fernandez trounced Macri in the presidential primary.

A group of Argentina's largest bond holders have begun forming a "creditor committee" in preparation for debt negotiations after the country's elections, sources told Reuters. Among stocks, Brazil's Bovespa index scaled yet another lifetime high as investors parsed through a batch of earnings reports.

State oil firm Petrobras rallied after saying some of its costs in a key oil-producing region plunged in the third quarter. The firm reported quarterly net income significantly lower than the previous quarter partly because of already announced one-off charges. Miner Vale rose 3.7% despite reporting a weaker-than-forecast rise in quarterly earnings, with analysts citing its strong cash flow, which they said cut its debt to an 11-year low.