June 9, 2020 / 2:54 PM / a month ago

EMERGING MARKETS-Latam stocks, FX slip after risk rally; Fed in focus

    By Susan Mathew
    June 9 (Reuters) - Latin American stock indexes fell on
Tuesday as investors cashed in after a stellar risk rally over
the last few sessions, and regional currencies weakened ahead of
a U.S. Federal Reserve meeting.
    As Wall Street pulled back, Brazil's Bovespa and
Colombia's COLCAP index broke a seven-session winning
run, while Chilean stocks fell after six sessions.
Mexican shares lost 2%.
    The declines caused the broader emerging markets shares
benchmark to give up gains from earlier in the day,
putting it on track to potentially end its longest winning
streak since April last year.
    The recent rally was spurred by bets of a quicker than
expected economic recovery from a pandemic-fueled lull, and
helped emerging market assets recover significantly from this
year's lows hit in March. 
    Latam assets, especially those of Brazil, still lag EM peers
as weak economic fundamentals and political uncertainty weigh.
Analysts expect the gap to normalize in the second half of the
year, but much depends on flattening the COVID-19 curve with
Latam now the latest epicenter.
    The market's focus turned to the Fed's two-day meeting set
to begin later on Tuesday. 
    The central bank is expected to keep interest rates
unchanged but the focus will be on whether policymakers still
sound cautious and introduce new measures, or reinforce the
upbeat tone set by the recent jobs data. 
    "We expect the Fed to keep its dovish message firmly in
place," said Ned Rumpeltin, European head of FX strategy at TD
Securities. "With the U.S. economy showing signs of a rebound,
our base case suggests the Fed should be quite constructive for
risky assets," he said. But he added that it need not
necessarily translate to dollar weakness.
    As oil prices slipped, currencies of crude exporters Mexico
 and Colombia slid 1% and 0.7% respectively,
retreating from three-month highs. 
    Data on Tuesday showed Mexican consumer price inflation
accelerated less than expected in May, remaining below the
central bank's target rate and creating room for more potential
interest rate cuts.
    Brazil's real fell 1% to 4.9 per dollar.
    "The real has recently been able to benefit significantly
from the improved sentiment on the financial markets. However,
the domestic news flow remains worrying," said You-Na
Park-Heger, an analyst at Commerzbank. 
    "Against this backdrop, we consider the recent recovery to
be exaggerated and see the risk of a downward correction in the
real. In the medium term, however, the dollar-real should remain
below the 5.00 mark."
    
    Key Latin American stock indexes and currencies at 1418 GMT:
  Stock indexes           Latest   Daily %
                                   change
 MSCI Emerging Markets    1007.41        0
                                   
 MSCI LatAm               2088.82    -1.35
                                   
 Brazil Bovespa          95974.11    -1.71
                                   
 Mexico IPC              39076.45     -2.2
                                   
 Chile IPSA               4048.87     -2.2
                                   
 Argentina MerVal               -        -
                                   
 Colombia COLCAP          1198.54    -2.42
                                   
                                          
      Currencies          Latest   Daily %
                                   change
 Brazil real               4.9105    -1.17
                                   
 Mexico peso              21.7180    -1.04
                                   
 Chile peso                 773.4    -0.65
                                   
 Colombia peso            3636.24    -0.97
                                   
 Peru sol                  3.4488    -0.41
                                   
 Argentina peso           69.1600    -0.12
 (interbank)                       
                                   
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Dan
Grebler)
  
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