August 7, 2019 / 7:49 PM / 4 months ago

EMERGING MARKETS-Latam FX weaken as growth worries grip

 (Updates prices)
    By Susan Mathew
    Aug 7 (Reuters) - Latin American currencies slid on
Wednesday as investors sought safety in U.S. government debt and
gold on fears that an escalating U.S.-China trade war will push
the world's largest economy toward recession.
    Benchmark U.S. Treasury yields fell across the board, with
the yield curve between three-month bills and 10-year notes
inverting to its deepest level since March 2007. Such an
inversion has preceded every U.S. recession in the past 50
    Central banks in New Zealand, India and Thailand on
Wednesday cut rates amid growing fears that the trade war could
aggravate a slowdown in the global economy. Trade tension
escalated sharply last week when Washington threatened more
tariffs on Chinese imports.
    Against a weaker dollar, Brazil's real resumed its
losing run and looked set to end lower for the seventh time in
eight sessions, while Argentina's peso slipped 0.9% to
its lowest level in almost three months.
    Mexico's peso fell 0.3% to 19.618. A Reuters poll
showed that Mexico's peso will likely struggle in the near
future amid rising global tensions and is expected to trade at
19.66 per dollar in one year, 0.4% weaker than July's survey.

    "Lower yields plus heightened global uncertainty in the
short term could erode MXN´s attractiveness as a popular carry
trade currency," Simon Harvey, a FX market analyst at Monex
Europe, wrote in a note.
    The peso also faces internal challenges with Mexico's
economy almost stalling in the second quarter, and downside
inflation pressure could prompt the start of an easing cycle
toward the last quarter of the year, Harvey said. 
    In Brazil, the lower house of Parliament approved the
government's key pension reform bill in a second round vote,
with finalization of amendments set to conclude by the end of
the day. The reform will then move to the Senate for another two
rounds of voting.  
    Sao Paulo-traded shares erased session losses to
trade marginally higher. Consumer stock Raia Drogasil
topped the main index with a 8.7% surge after posting a 13% rise
in second-quarter profit.
    Most other Latam stocks markets also rose as Wall Street cut
    Mexican stocks jumped more than 1 percent to extend
gains to a second day after losing more than 4% over the five
prior sessions.  
    MSCI's widely tracked index of emerging market shares
, which includes almost 1,200 stocks from 26 developing
world countries, was down for an 11th straight day.
    If it cannot recover before the close, it will be the second
longest losing streak, exceeded only by two 12-day runs in 2015
when Greece's debt crisis was building to a climax, and before
that all the way back in September 1990.
    Key Latin American stock indexes and currencies at 1941 GMT:
    Stock indexes             Latest    Daily %
 MSCI Emerging Markets          972.65     -0.01
 MSCI LatAm                    2714.15      0.81
 Brazil Bovespa              102538.56      0.05
 Mexico IPC                   40337.44      1.39
 Chile IPSA                    4820.90       0.9
 Argentina MerVal             40950.78    -0.886
       Currencies             Latest    Daily %
 Brazil real                    3.9728     -0.44
 Mexico peso                   19.6259     -0.26
 Chile peso                     714.50     -0.07
 Peru sol                        3.388     -0.38
 Argentina peso                45.5500     -0.55
 (Reporting by Susan Mathew in Bengaluru;
Editing by Leslie Adler)
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