LatAm stocks up

Latin American currencies gained on the US dollar while stocks in the region edged up after US inflation data came in tamer than expected, giving weight to the US Federal Reserve's stance on an "extended period" of low interest rates. The US consumer price data helped calm fears that interest rates were on the way up after the Federal Reserve late on Thursday raised the discount interest rate it charges on emergency loans to banks.
The US Consumer Price Index rose 0.2 percent in January, and the core CPI, which excludes food and energy costs, dropped for the first time in 27 years. Ultra-low interest rates in the United States, which have been near zero percent since December 2008, put the US dollar at a disadvantage against higher yields in Latin America.
Mexico's peso has firmed over 3 percent from a three-month low hit February 5, and analysts say it could strengthen further, backed by a surprisingly robust recovery in Mexico's exports. Mexico's central bank on Friday left interest rates unchanged at 4.50 percent in its bid to help the economy recover. Barclays Capital, however, said the tone of the bank's policy statement was "a little bit more hawkish" than its prior one.
"Overall, we think the marginal changes in tone do not make the beginning of the tightening cycle more imminent. In our view, there is unlikely to be significant further deterioration of inflation expectations from the current high levels, and we agree, too, that the output gap will contain second-round effects, at least to some extent," the firm said in a note to clients.
Mexico's peso rose 0.56 percent to 12.8030 against the US dollar. In the initial reaction to the discount rate increase, the greenback surged higher on expectations that the Fed was starting its rate rise cycle. Elsewhere in the currency markets, the Brazilian real rose 0.94 percent to 1.8050 against the US dollar while the Colombian peso rose 0.46 percent to 1,922 against the greenback.
MSCI's Latin American stock index edged up 0.31 percent while the broader MSCI emerging markets stock index fell 0.72 percent. The credit markets were similarly quiet with prices for US dollar-denominated sovereign bonds little changed. The yield spread over US Treasuries was unchanged at 291 basis points, according to the J.P. Morgan Emerging Markets Bond Index Plus.