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EMERGING MARKETS-Brazil real falls as Bolsonaro rejects welfare plan

    * Brazil's Bolsonaro rejects econ ministry's welfare
    * Historic fall in Mexico's Q2 GDP weighs on peso
    * Argentina formally starts talks with IMF for a new program
    * Key speech from U.S. Fed's Powell eyed for Thursday

 (New throughout, updates prices, market activity and comments,
adds bullets)
    By Susan Mathew and Shreyashi Sanyal
    Aug 26 (Reuters) - Brazil's real tumbled on Wednesday after
President Jair Bolsonaro rejected a proposed welfare reform,
while the Mexican peso retreated from a one-month high as data
showed the sharpest economic contraction ever.  
    The real fell 1.4% after posting its biggest
daily rise in two weeks on Tuesday, after Bolsonaro cast aside a
proposal by Economy Minister Paulo Guedes for a new cash welfare
program called "Renda Brasil" because it would involve cutting
other social programs.     
    Mexico's peso fell as much as 0.4% after data showed
GDP fell 17.1% in April to June, from the previous three-month
period in seasonally adjusted terms, as the coronavirus pandemic
hammered the economy.
    In annual terms, the economy contracted 18.7% in the second
quarter compared to a year earlier. But monthly data showed an 
improvement in June from May.
    Ahead of a speech by U.S. Federal Reserve Chairman Jerome
Powell at the annual Jackson Hole conference on Thursday, the
dollar edged higher. Investors are watching for possible new
steps to prop up the U.S. economy.
    "Hints of further easing or some urgency in the tone of
Fed's dovish commitment can help underpin the dollar's softness
but the lack of clarity could drag it higher especially when
dollar short positioning is near record high," said FX analysts
at Maybank. 
    Despite higher copper prices, top producer Chile's peso
 was flat after Moody's cut the country's outlook to
negative citing a rising debt-to-GDP ratio which poses a "key
credit concern".
    It added that the economic drag from the pandemic as well as
unrest over social inequality could pressure Chile's commitment
to fiscal prudence. Fitch and Standard & Poor's downgraded
Chile's outlook to negative in March and April, respectively.
    Declining oil prices saw crude exporter Colombia's peso
 extend losses to a fifth straight session to stay near
lows not seen since mid-May. 
    In Peru, the Congress approved a law on Tuesday that allows
citizens to partially draw down their contributions to the state
pension fund, despite strong opposition from the government.

    The sol currency had hit all-time lows last session.
    Argentina said its government has formally initiated talks
with the International Monetary Fund on a new program on
Wednesday, as the country takes the next step to recover from a
crippling debt crisis. The peso weakened against the
    Key Latin American stock indexes and currencies at 1935 GMT:
         Stock indexes                 Latest   Daily %
 MSCI Emerging Markets                 1118.27     0.32
 MSCI LatAm                            1935.60    -1.38
 Brazil Bovespa                      100352.87    -1.73
 Mexico IPC                           37736.07    -1.34
 Chile IPSA                            3858.55    -1.01
 Argentina MerVal                     46147.91   -0.926
 Colombia COLCAP                       1228.19    -0.19
            Currencies                 Latest   Daily %
 Brazil real                            5.6022    -1.35
 Mexico peso                           21.9290    -0.20
 Chile peso                              785.8    -0.01
 Colombia peso                         3829.41     0.88
 Peru sol                               3.5698     0.45
 Argentina peso (interbank)            73.8500    -0.05
 Argentina peso (parallel)                 134     2.24
 (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
Editing by Andrea Ricci and David Gregorio)