May 22, 2020 / 8:20 PM / 10 days ago

EMERGING MARKETS-Most Latam FX fall as U.S.-China trade worries rise

    * China's Hong Kong security law compounds trade worries
    * Dollar strengthens as safe-haven demand rises
    * Argentina extends debt talks deadline as default looms

 (Adds comments, updates prices)
    By Shreyashi Sanyal
    May 22 (Reuters) - Most Latin American currencies weakened
on Friday as demand for the safe-haven dollar rose after China's
plan to impose a new national security law on Hong Kong became
the latest front in intensifying tensions between Beijing and
Washington.
    The U.S. dollar rose for a second day, while Brazil's real
 slipped 0.2%. Declining oil prices pressured crude
exporter Colombia's peso, while Chile's currency
dipped as prices of its main export, copper, slid.     
    "As 'trade conflict' also means 'USD strength', the risk-on
related USD weakness seen over the past days comes to a
(preliminary) end," said Ulrich Leuchtmann, head of FX and
commodity research at Commerzbank. 
    Regional stocks were also lower, with Brazil shares
retreating from near three-week highs.  
    Latin American assets have now been hit with a double
whammy, with most South American economies reeling under
pressure from coronavirus-fueled shutdowns and more recently, a
resurgence in U.S.-China trade tensions.  
    "Our working assumption is that lockdowns will eventually be
lifted as the virus comes under control. Even so, the fact that
they will remain in place for longer in most emerging markets
will make the region's (Latin America) recovery slower,"
economists at Capital Economics wrote in a note.
    Brazil suffered a record of 1,188 daily coronavirus deaths
on Thursday and is fast approaching Russia to become the world's
No. 2 COVID-19 hot spot behind the United States, as it
struggles to tackle the health and economic crisis in the face
of rising political worries.
    Mexico's main index rose 0.6% with eyes on
developments regarding the new rules in the energy sector.

    Meanwhile, data showed inflation in the country accelerated
faster that expected in the first half of May, but the annual
rate still remained below the central bank's target rate.
  
    Citigroup analysts say the rates market will likely look
beyond Mexico's inflation number given that food price 
increases are likely seen as transitory by the central bank. 
    In Argentina, the government is planning to amend its offer
to creditors to restructure $65 billion in foreign debt, with
talks on a positive course, Economy Minister Martin Guzman told
Reuters. 
    On Thursday, the government extended a deadline for talks
with creditors to restructure around $65 billion in foreign debt
to June 2, as the two sides edge closer to a deal needed to
avert a messy default that would drag the country deeper into
crisis.
    
    Key Latin American stock indexes and currencies at 1956 GMT:
    
      Stock indexes                 Latest       Daily % change
 MSCI Emerging Markets                  904.53             -2.74
                                                
 MSCI LatAm                            1669.44              -0.4
                                                
 Brazil Bovespa                       82031.58              -1.2
 Mexico IPC                           35779.27              0.61
 Chile IPSA                            3733.83             -0.57
                                                
 Argentina MerVal                     40771.22            -1.491
                                                
 Colombia COLCAP                       1061.78             -0.41
                                                
                                                                
         Currencies                 Latest       Daily % change
 Brazil real                            5.5726             -0.15
                                                
 Mexico peso                           22.7629              0.45
                                                
 Chile peso                              805.5             -0.35
                                                
 Colombia peso                         3774.64             -0.39
 Peru sol                                3.429             -0.53
                                                
 Argentina peso (interbank)            68.1700             -0.12
                                                
 
 

 (Reporting by Shreyashi Sanyal and Susan Mathew in Bengaluru;
Editing by Andrea Ricci)
  
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