May 12, 2020 / 2:40 PM / 3 months ago

EMERGING MARKETS-Latam FX, stocks rise, but virus uncertainty persists

    By Susan Mathew
    May 12 (Reuters) - Latin American currencies rose on Tuesday
as risk appetite got a lift from developments in the search for
a coronavirus treatment, while China's waiving of tariffs on
some U.S. goods was seen as a step toward easing tensions
between the two nations.
    The dollar dropped after the World Health Organization said
it was focusing on some treatments that appeared to be limiting
the severity or length of COVID-19, the respiratory illness
caused by the novel coronavirus.
    Meanwhile, China announced a new list of 79 U.S. products
including ores of rare earth metals, gold ores and silver ores
for waivers from retaliatory tariffs, amid continued pressure on
Beijing to boost imports from the United States. 
    Brazil's real rose 1%, while the Colombian and
Chilean pesos, firmed 0.5% and 0.3% respectively.

    Latam shares followed U.S. stocks higher,
although a 1% slip in Ecopetrol following a 95% plunge
in its quarterly profit weighed on Colombian stocks.

    But as uncertainties rise, analysts warn of deteriorating
risk appetite.
    "We are skeptical that within the next few months we will
witness substantial capital inflows into emerging market assets
and because of that the EM currencies will struggle to gain a
sustainable bullish momentum against the U.S. dollar," Rabobank
FX strategists Jane Foley and Piotr Matys wrote. 
    Earlier on Tuesday, sentiment was dulled by signs of a
second wave of the coronavirus pandemic after China, South Korea
and Germany reported a spike in the number of new cases. Fears
grew that recently re-opened economies may be forced back into
lockdowns, thus deepening the economic damage.
    Latin American central banks have been revising down
expectations for economic growth, with Chile being the latest.
The world's top copper producer's economy is expected to shrink
7.2% in the second quarter.
    Brazil, one of the emerging market countries hardest hit by
the pandemic, registered 5,632 new coronavirus cases on Monday,
taking its total tally to 168,331. Some have criticized
President Jair Bolsonaro for a lax attitude towards the
    Data on Tuesday showed services activity in Brazil marked
its biggest monthly fall on record due to the pandemic.
Meanwhile, minutes of the central bank's last meeting showed the
scope for further cuts in its key interest rate may be small
amid increasing market volatility.
    The Mexican peso traded flat. S&P Global Ratings on
Monday said potential increases in liabilities stemming from
heavily indebted state oil firm Pemex could raise Mexico's debt
burden and lead to further credit downgrades.
    A Reuters poll showed Mexico's central bank would cut
interest rates at its scheduled meeting this week by 50 basis
points to 5.5%.
    Key Latin American stock indexes and currencies at 1415 GMT:
  Stock indexes           Latest   Daily %
 MSCI Emerging Markets     913.98    -0.21
 MSCI LatAm               1619.28      1.4
 Brazil Bovespa          80204.80     1.44
 Mexico IPC              37844.34     0.56
 Chile IPSA               3821.39     0.25
 Argentina MerVal               -        -
 Colombia COLCAP          1104.10        0
      Currencies          Latest   Daily %
 Brazil real               5.7585     1.10
 Mexico peso              24.0170    -0.40
 Chile peso                   822     0.22
 Colombia peso            3878.18     0.25
 Peru sol                  3.4208    -0.18
 Argentina peso           67.4500    -0.12
 (Reporting by Susan Mathew in Bengaluru
Editing by Paul Simao)
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