May 6, 2020 / 2:49 PM / a month ago

EMERGING MARKETS-Latam FX weakens, Brazil central bank meeting watched

    * Fitch lowers Brazil outlook to negative
    * Major cities in Brazil go into coronavirus-induced
    * Brazil central bank expected to cut rates
    * Lower oil prices push Colombian, Mexican pesos lower
    * Most Latam shares decline

    By Susan Mathew
    May 6 (Reuters) - Brazil's real led Latin American
currencies lower on Wednesday after rating agency Fitch lowered
the country's credit rating to negative, while major Brazilian
cities went into lockdowns to curb the spread of the COVID-19
    Ahead of an expected cut in interest rates by the central
bank later in the day, Fitch overnight said Brazil's economy is
on course to shrink 4% this year, and noted a rapidly
deteriorating fiscal position and growing political risks.
    Brazil's real was down 1.6%. 
    As economic indicators paint a bleak outlook, Brazil's lower
house is set to pass a proposed constitutional amendment that
gives the central bank powers to buy public and private sector
assets, but concerns emerged regarding its legality.

    Sao Luis became Brazil's first major city to begin a
lockdown on Tuesday with another, Fortaleza, planning to follow
suit on Friday, as Latin America's hardest hit country reported
105,222 confirmed cases of the novel coronavirus and 7,288
    The moves come as several nations have begun to ease
    Other currencies in the region lost between 0.5% and 1.2%
against a stronger dollar, with Mexican and Colombian
pesos pressured by falling oil prices. MSCI's index of
Latin American currencies dropped 1.8%.
    "Already bleak growth prospects in the region now look
considerably more dire on the back of the dual virus-oil
shocks," Alejo Czerwonko, emerging markets strategist at UBS
Global Wealth Management told the Reuters Global Markets Forum. 
    "The region is set to experience the deepest contraction in
its modern economic history ... and the global financial crisis
of 2008 will pale in comparison to the output losses expected
for 2020," he said. UBS predicts a contraction of 6% annually
for the region as a whole, with a downside risk to the forecast.
    The Argentine peso hit new lows as a deadline for
bondholders to accept a tough $65 billion debt restructuring
loomed. A numbers of economists, including Nobel laureates
Joseph Stiglitz and Edmund S. Phelps, backed the government's
debt restructuring proposal on Wednesday.
    In line with a choppy session on Wall Street, most stocks in
the region fell with those in Brazil slipping 1.2%.
    Key Latin American stock indexes and currencies at 1437 GMT:
  Stock indexes           Latest   Daily %
 MSCI Emerging Markets     897.81     0.23
 MSCI LatAm               1588.72    -2.51
 Brazil Bovespa          78548.41    -1.16
 Mexico IPC              36547.03    -0.19
 Chile IPSA               3958.57     0.92
 Argentina MerVal        33055.92   -1.462
 Colombia COLCAP          1093.17    -0.56
      Currencies          Latest   Daily %
 Brazil real               5.6784    -1.58
 Mexico peso              24.2920    -1.26
 Chile peso                 838.8    -0.57
 Colombia peso            3960.65    -0.94
 Peru sol                  3.4048    -0.50
 Argentina peso           67.0900    -0.12
 (Additional reporting by Lisa Pauline Mattackal and Aaron
Saldanha in Bengaluru; editing by Jonathan Oatis)
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