June 5, 2018 / 4:13 PM / 2 months ago

EMERGING MARKETS-Mexican peso slumps on NAFTA; Brazil real regains ground

    By Bruno Federowski
    BRASILIA, June 5 (Reuters) - The Mexican peso on Tuesday
fell to its weakest since February 2017 after the United States
raised the possibility of turning negotiations over the North
American Free Trade Agreement into bilateral talks.
    White House economic adviser Larry Kudlow said on Tuesday
U.S. President Donald Trump is considering holding separate
talks with Canada and Mexico, adding fuel to concerns that the
United States could scrap NAFTA.
    Kudlow's remarks accentuated a selloff in the peso that was
triggered by Mexico's imposition of retaliatory measures against
U.S. tariffs on imports of Mexican steel and aluminum.

    The peso weakened as much as 1.9 percent to 20.46 to the
dollar. In a client note, strategists at Continuum Economics
said that the central bank could consider hiking rates or
intervening in currency markets if the currency broke past the
20.50 mark.
    Concerns over U.S. protectionism, coupled with rising U.S.
bond yields, are weighing on demand for emerging-market assets.
    That trend continued on Tuesday, with all Latin American
currencies trading in negative territory.
    Uncertainty about this year's elections in Brazil caused the
real to weaken as much as 1.7 percent, but the currency
regained some ground in the wake of increased central bank
action.
    A poll on Tuesday showed increased polarization ahead of
Brazil's October presidential elections, with far-right lawmaker
Jair Bolsonaro leading the ballot followed by center-left
populist Ciro Gomes.
    "A leftist candidate seems to be more competitive than a
market-friendly candidate," a portfolio manager at a São
Paulo-based brokerage said.
    Demand for Brazilian assets has also suffered in the wake of
nationwide truckers' strikes in the final weeks of May that
drove policymakers to subsidize diesel prices.
    Traders remain fearful that the government will be forced to
employ other costly measures to curb political instability,
stepping back from efforts to stem a growing budget deficit.
    
    Key Latin American stock indexes and currencies at 1520 GMT:
 Stock indexes                             daily %   YTD %
                                            change  change
                               Latest               
 MSCI Emerging Markets           1145.17     -0.14   -1.01
                                                    
 MSCI LatAm                      2565.86     -1.46   -7.93
                                                    
 Brazil Bovespa                 77796.44     -1.02    1.83
 Mexico IPC                     45275.94      0.07   -8.26
 Chile IPSA                      5547.93     -0.19   -0.30
                                                    
 Chile IGPA                     28049.50     -0.17    0.25
 Argentina MerVal               29866.07      2.86   -0.66
                                                    
 Colombia IGBC                  12450.08      0.12    9.49
                                                    
                                                          
 Currencies                                daily %   YTD %
                                            change  change
                                  Latest            
 Brazil real                      3.7654     -0.62  -12.01
                                                    
 Mexico peso                     20.3725     -1.48   -3.31
                                                    
 Chile peso                        634.7     -0.55   -3.16
                                                    
 Colombia peso                    2867.6     -0.27    3.99
 Peru sol                          3.274     -0.18   -1.13
                                                    
 Argentina peso (interbank)      24.9750     -0.02  -25.53
                                                    
 Argentina peso (parallel)         25.95      0.19  -25.90
                                                    
 
 (Reporting by Bruno Federowski; Additional reporting by Claudia
Violante in São Paulo)
  
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