June 23, 2020 / 3:02 PM / 2 months ago

EMERGING MARKETS-Latam FX rises as U.S.-China deal still on track

    By Shreyashi Sanyal
    June 23 (Reuters) - Latin American currencies moved higher
on Tuesday after the White House made reassurances that the
Phase 1 trade deal with China remained "fully intact," while
Brazil's real jumped as its central bank saw little scope to cut
interest rates much further. 
    Emerging markets in Asia initially slipped on White House
trade adviser Peter Navarro's comments that the U.S.-China trade
pact was "over" but reclaimed losses soon after he walked back
his remarks.
    "Risk appetite has recovered sharply after a brief US/China
trade spat was reversed overnight," said Ned Rumpeltin, European
head of FX strategy at TD Securities.
    Investors in Latin America closely follow developments
around trade between the world's two largest economies as China
remains one of Latin America's biggest commodity export
destinations.
    The Brazilian real jumped 2%, as it led the
advance among regional peers, after minutes of the June 16-17
meeting of the central bank's rate-setting committee, known as
Copom, urged caution in easing rates much further. 
    The central bank also outlined details of its plans to buy
private-sector bonds on the secondary market.
    Interest rates in Latin America's largest economy are
currently at a record low of 2.25%, with policymakers
acknowledging the economic shock from the COVID-19 pandemic
being disinflationary and inflation expectations continuing to
fall.
    Brazil is the second worst-hit country by the coronavirus
pandemic after the United States, and frequently over the last
month has recorded more than 1,000 deaths a day. Its economy has
been languishing due to the pandemic and rising political
uncertainties.
    Emerging markets have been hit by selling pressure recently
on rising fears of a second wave of coronavirus infections, but
analysts are now questioning the strictness of another round of
potential lockdowns.   
    "Investors appear less worried about the increase in new
coronavirus infections worldwide. While the surge in new cases
is somewhat worrying, the risk of a second lockdown is seen as
low," said Milan Cutkovic, market analyst at AxiCorp.
    The Mexican, Colombian and Chilean pesos
 also rose on Tuesday. The MSCI's index of Latin American
currencies has fallen 17% this year, but has
risen 11% from year-lows hit in May.
    More bleak growth forecasts continued to pour in for South
American countries as Chile's Budget Office said on Monday the
economy would shrink 6.5% in 2020, a far deeper contraction than
predicted just two months ago.
    Stocks in Latin America tracked Wall Street higher as the
pace of declines in U.S. business activity slowed, raising hopes
that the worst of the coronavirus crisis was over in the world's
largest economy.
    The Brazilian, Mexican and Argentine
stock market indexes rose between 0.8% and 2% on Tuesday. 
          
    Key Latin American stock indexes and currencies at 1452 GMT:
    
   Stock indexes           Latest    Daily %
                                     change
 MSCI Emerging Markets     1014.93       1.47
                                    
 MSCI LatAm                1998.88       2.36
                                    
 Brazil Bovespa           97076.62       1.83
                                    
 Mexico IPC               38530.87       1.07
                                    
 Chile IPSA                3991.06      -0.19
                                    
 Argentina MerVal         41153.20      2.005
                                    
 Colombia COLCAP           1147.08      -1.23
                                    
                                             
      Currencies           Latest    Daily %
                                     change
 Brazil real                5.1654       2.05
                                    
 Mexico peso               22.3650       0.54
                                    
 Chile peso                  819.6      -0.38
                                    
 Colombia peso             3696.77       0.79
                                    
 Peru sol                    3.505       0.00
                                    
 Argentina peso            70.0300      -0.07
 (interbank)                        
                                    
 

 (Reporting by Shreyashi Sanyal in Bengaluru; editing by
Jonathan Oatis)
  
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