July 22, 2019 / 8:41 PM / a year ago

EMERGING MARKETS-Latam FX muted as investors look ahead to ECB, Fed

 (Updates throughout with market closings)
    By Sruthi Shankar
    July 22 (Reuters) - Latin American currencies largely held
steady on Monday as investors awaited policy decisions in the
coming weeks from the European Central Bank and the U.S. Federal
Reserve for clues on the path of interest rates. 
    Also helping risk sentiment was a South China Morning Post
report that U.S. trade negotiators might visit China next week
for their first in-person talks with Beijing officials since the
G20 meeting late last month where U.S. President Donald Trump
held off imposing new tariffs on Chinese goods.
    Hopes of major central banks embracing looser monetary
policy to counter a global slowdown have encouraged inflows so
far this year into higher-risk, emerging markets.
    Traders see about a 46% probability that European
policymakers will lower a key deposit rate by 10 basis points at
a meeting this week.           
    The Fed is set to meet next week, with investors pricing in
a rate cut of 25 basis points, although expectations for a cut
of as much as 50 basis points have been dampened amid
stabilizing economic data.
    Brazil's real climbed 0.2% while Sao Paulo-traded
stocks moved 0.4% higher aided by gains in financial
    But heavyweight iron ore miner Vale dropped more
than 1% after it said its second-quarter iron ore production
tumbled almost 34% from a year ago as many of its dams remained
all or partially shut down following a deadly dam burst in
    The Brazilian government announced an additional 1.443
billion reais ($386 million) freeze on spending, although was
below the 2.5 billion reais estimate from President Jair
Bolsonaro over the weekend, as the government will cover part of
its shortfall with 809 million reais from a reserve fund.

    Mexican stocks along with the peso slid amid
concerns about debt-laden state oil company Pemex after ratings
agency Standard & Poor's said it could accelerate its annual
review of Mexico's sovereign bonds and Pemex if the economy
enters a recession and growth estimates fall for 2020.

    "Recent comments by S&P imply a high risk of a downgrade on
the manifestation of a technical recession, likely still in Q3
(from BBB+ to BBB for the sovereign and Pemex)," ING analyst
Gustavo Rangel wrote in a research note.
    "We expect a more consequential downgrade by Moody's later
in the year on further evidence for a weaker medium-term growth
outlook, exacerbated by risks for the fiscal outlook, which
would see Pemex losing investment-grade status."
    Latin American stock indexes and currencies at 1959 GMT
 Stock indexes                      Latest    Daily %
 MSCI Emerging Markets              1,053.68    -0.36
 MSCI LatAm                         2,911.18    -0.08
 Brazil Bovespa                   103,844.05     0.38
 Mexico IPC                        41,196.21    -0.99
 Chile IPSA                         5,026.76    -0.51
 Argentina MerVal                  38,903.59    -3.13
 Colombia IGBC                     12,967.93    -0.14
 Currencies                         Latest    Daily %
 Brazil real                          3.7382     0.17
 Mexico peso                         19.0543    -0.16
 Chile peso                           688.61    -0.07
 Colombia peso                         3,176    -0.15
 Peru sol                              3.285    -0.09
 Argentina peso (interbank)          42.4500     0.43
 (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru,
editing by G Crosse)
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