May 17, 2019 / 9:07 PM / a month ago

EMERGING MARKETS-Latam FX drops, Brazil's real clocks 8-month closing low

 (Recasts throughout, updates prices, adds quotes by market
strategist and broker)
    By Aaron Saldanha
    May 17 (Reuters) - Latin American currencies softened on
Friday against a robust dollar amid rising U.S.-China tensions,
with Brazil's real facing intense selling pressure as investors'
concerns about growth in Latin America's top economy gathered
steam.
    A commentary in the Chinese Communist Party's People's Daily
which said the trade war with the United States will only make
China stronger jarred risk appetite globally. 
    Locally, MSCI's index of Latin American currencies
 fell 0.9%, while its Latin American stocks index
 eased 1%, with Brazilian assets in focus amid
deepening fears of growth slowing.  
    "With rising trade tensions and risk sentiment abroad, and a
souring political environment domestically, Brazilian assets
have seen a sell-off in key benchmarks," Mauricio Oreng, senior
Brazil strategist at Rabobank, wrote in a note.
    Brazil's real dived 1.3% to a near eight-month
closing low. Investors see a greater probability of the
country's central bank taking a more supportive policy stance
amid the possibility of growth having slowed in 2019's first
quarter. 
    "It's a perfect storm for a speculative attack on the real,"
said a broker in Sao Paulo.
    "What the market is looking for is the point at which the
central bank gets uncomfortable." 
    Economy Minister Paulo Guedes said growth expectations were
falling rather than growth itself, blaming fragmented domestic
politics and the resulting slow progress of the government's
pension reform bill in Congress.    
    Stocks ended little changed as losses among
financials and energy stocks counterweighed gains in materials
stocks.
    Common shares and preferred shares of
state-run oil firm Petroleo Brasileiro SA (Petrobras) slid 0.8%
and 2.3%, respectively, amid lower Brent crude futures.

    Banco do Brasil SA shed 1.7%. The lender is one
of three banks Petrobras has removed from the privatization
process of fuel distribution unit Petrobras Distribuidora
, four sources told Reuters this week.
    Shares of miner Vale SA rose 2.8%, with
Dalian-traded iron ore futures having hit a record peak earlier
in the global day.    
   Investors' optimism toward Brazil has waned recently
following a slew of warnings on growth and the slow progress of
the pension reform proposal, leading to international investors
scaling back exposure to the country.

    A heavily traded Brazil-focused ETF saw weekly
outflows from U.S.-domiciled investors for the first week in
five, Lipper estimates for the week ended Wednesday show. The
ETF has shed about 10.8% this month.
    Mexican stocks marked time, while the peso
made back some of the of ground lost earlier in the day to
weaken 0.2%. U.S. President Donald Trump said his country has
reached a deal with Canada to remove tariffs on aluminum and
steel, paving the way for similar pact with Mexico.
    Argentina's peso softened, while stocks fell
1.7% as investors cashed out some chips to lock in gains made
over the last three days. 
    
    Latin American stock indexes and currencies at 2050 GMT
    
 Stock indexes                               daily %
                                 Latest       change
 MSCI Emerging Markets            996.39       -1.46
                                          
 MSCI LatAm                      2527.16       -1.01
                                          
 Brazil Bovespa                 89992.73       -0.04
                                          
 Mexico IPC                     43445.62        0.01
                                          
 Chile IPSA                      4925.58       -1.05
                                          
 Argentina MerVal               33315.70        -1.7
                                          
 Colombia IGBC                  12237.24       -0.31
                                          
                                                    
 Currencies                                  daily %
                                              change
                                  Latest  
 Brazil real                      4.1001       -0.01
                                          
 Mexico peso                     19.1604       -0.21
                                          
 Chile peso                        695.7       -0.29
                                          
 Colombia peso                   3320.03       -0.68
 Peru sol                           3.33       -0.39
                                          
 Argentina peso (interbank)      44.9800       -0.40
                                          
 
 (Reporting by Aaron Saldanha in Bengaluru, Additional reporting
by Jamie McGeever in Brasilia and Jose Gomes Neto in Sao Paulo;
editing by Jonathan Oatis)
  
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