June 10, 2020 / 7:31 PM / a month ago

EMERGING MARKETS-Latam stocks, FX retreat as Fed points to continued stimulus

    * Brazil posts steepest monthly deflation since 1998
    * Mexican economy likely shrank 17% in April -finance
    * OECD sees deepest peacetime slump in a century

 (Adds details, comment, updates prices)
    By Susan Mathew and Ambar Warrick
    June 10 (Reuters) - Latin American stocks and most
currencies retreated from recent highs on Wednesday after
comments from the U.S. Federal Reserve implied a long road to
economic recovery from the coronavirus crisis, denting risk
    The Fed signaled years of continued monetary support with
policymakers expecting a 6.5% decline in gross domestic product
this year.
    Risk assets have rallied on the prospect of some near-term
pickup in economic activity. Still, the Fed's statement implied
that the world's largest economy needs more than just easing
lockdowns to recover.
    "While the Fed was successful in helping the stock market
recover from the coronavirus-driven selloff in March, the jury
is out on how much the Fed is helping the economy recover," said
Danielle DiMartino Booth, CEO and chief strategist of Quill
    The Organisation for Economic Cooperation and Development
(OECD) expects the global economy to contract 6% this year, the
biggest peacetime downturn in a century, before it emerges next
year from a recession.
    Brazil's real dropped around 1% after data showed the
 steepest monthly deflation since 1998 as the coronavirus
outbreak slammed fuel and air travel prices. This raised bets of
another interest rate cut further into record low territory next
    After a pullback on Tuesday, Mexico's peso rose 0.2%.
The Mexican economy most likely shrank 17% in April and will
probably contract "a little less" in May, the finance minister
said, as officials further re-open the country after more than
two months of lockdown.
    "Economic recovery is likely to be very slow," said You-Na
Park-Heger, an analyst at Commerzbank, citing policy uncertainty
by the government and likely interest rate cuts as risks for the
    The Colombian peso fell 0.6%, while Chile's peso
 retreated 0.3%.
    Regional currencies failed to capitalize on weakness in the
dollar, which sank to a three-month low.
    Latin American stocks also retreated, with bourses in Brazil
 and Mexico losing about 1.8% each. 
    Argentine stocks edged up, while the peso
dipped to the dollar.
    As a Friday deadline approaches, Argentina's $65 billion
debt restructuring is being closely watched, with the government
and its creditors in a sensitive final stretch to strike a
breakthrough. Citigroup strategists expect yet another extension
of the deadline as the government prepares a second amended
    Latin American stock indexes and currencies:
    Stock indexes             Latest     Daily % change
 MSCI Emerging Markets         1012.68                0.3
 MSCI LatAm                    2051.18              -2.67
 Brazil Bovespa               95034.14              -1.77
 Mexico IPC                   38470.25              -1.83
 Chile IPSA                    4073.38              -1.28
 Argentina MerVal             46739.81              0.578
 Colombia COLCAP               1189.87              -1.66
       Currencies             Latest     Daily % change
 Brazil real                    4.9374              -1.02
 Mexico peso                   21.8538               0.22
 Chile peso                      772.4              -0.34
 Colombia peso                 3670.06              -0.60
 Peru sol                       3.4248               0.53
 Argentina peso                69.2500              -0.12
 (Reporting by Susan Mathew in Bengaluru and Ambar Warrick;
editing by Grant McCool)
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