Latin American assets rose on Wednesday as investors held on to optimism from US-China trade talks offsetting 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 US earlier in the day but increased the bets for the European Central Bank to cut interest rates on Thursday.
MSCI's index of Latin American stocks and currencies rose with Brazilian assets
leading gains as the government's latest move to cut worker protections and boost job creation lifted sentiment. 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 announcement comes after Jair Bolsonaro-led 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 its one more measure that should help in accelerating the process of stimulating the economy," said Gustavo Rangel, chief economist LATAM, 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. Mexican stocks moved 0.8% higher while the peso was on track to break a three-day losing streak after data showed consumer prices rose 0.27% during the first half of July, slightly beating expectations.
Among stocks, Grupo Mexico rose over 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.
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