October 18, 2018 / 8:41 PM / a month ago

EMERGING MARKETS-Strong dollar, slide in global equities punish Latam assets

    By Susan Mathew
    Oct 18 (Reuters) - Latin American stocks slumped on Thursday
as a decline on Wall Street coupled with concerns over Italy's
budget and the escalating Sino-U.S. trade war saw investors seek
refuge in safer assets like the dollar, whose gains weakened
regional currencies.
    The European Commission, saying Italy's 2019 budget draft
was in "particularly serious" breach of EU budget rules, pointed
to a possible rejection of a member state's fiscal plan, which
knocked the euro and bolstered the dollar which was already
riding high on the U.S. Federal Reserve's hawkish tone.

    The MSCI emerging market Latin American stock index
 was 2.8 percent lower, with Mexico's IPC index
 hitting its lowest in 15 weeks, while the currency index
 logged its sharpest one-day loss in two weeks.
    "Today has been one of the classic risk-off days," said
Christian Lawrence, a senior market strategist at Rabobank.
    "It primarily started in China where we saw sharp slump in
Shanghai ... The U.S. saw another round of selling and it took
emerging market currencies and bourses down with it." 
    Brazil's bovespa stock index dropped 2 percent in
its first fall in three days, while Mexico's IPC declined
1.7 percent.
    Among currencies, the Mexican peso weakened 1.4
percent in its worst session in more than seven weeks. 
    The peso was hit by U.S. President Donald Trump threatening
to close the southern U.S. border and cut aid if Central
American governments did not halt migrants headed to the United
States, and Bank of Mexico's October meeting minutes pointing to
high inflation risk.
    Trump said illegal immigration was more important to him
than the new trade deal with Mexico to replace the North
American Free Trade Agreement.
    "If we look at the recent weakness we've seen this year, the
Mexican peso is one of the currencies that have done well.
Today's move lower, is largely a product of Trump's tweet this
morning about USMCA and the migrant issue," Lawrence added.
    Brazil's real declined a little more than half a
percent, while the Argentine peso declined the most in
the region.
    Rating agency Moody's Investors Service said Argentina's
need to tap international capital markets to cover its financing
requirements would materially reduce due to its funding deal
with the International Monetary Fund, but warned that the
economy is vulnerable to recession through 2019.
    Argentina's annual inflation currently stands at 40.5
percent and is expected to rise to 44 percent by the year-end. 
    Rising inflation has led to its central bank hiking the
benchmark interest rates dramatically - now at 60 percent -
pushing its economy into recession and prompting it to turn to
the International Monetary Fund for a funding facility to shore
up its finances and plug the currency's free fall.
    Key Latin American stock indexes and currencies at 1949 GMT:
 Stock indexes                            Daily %      YTD %
                                           change     change
                              Latest               
 MSCI Emerging Markets           969.27     -1.47     -15.08
                                                   
 MSCI LatAm                     2688.63     -2.76      -2.23
                                                   
 Brazil Bovespa                84069.36     -1.98      10.04
                                                   
 Mexico IPC                    47057.99     -1.73      -4.65
                                                   
 Chile IPSA                     5119.06     -0.43      -0.43
                                                   
 Argentina MerVal              28348.66      -1.3      -5.71
                                                   
 Colombia IGBC                 12525.34      -0.6      10.16
                                                   
                                                            
 Currencies                               Daily %      YTD %
                                           change     change
                                 Latest            
 Brazil real                     3.7210      0.06     -10.96
                                                   
 Mexico peso                    19.1457     -1.44       2.89
                                                   
 Chile peso                       677.2     -0.89      -9.24
                                                   
 Colombia peso                     3091     -0.81      -3.53
 Peru sol                         3.334      0.03      -2.91
                                                   
 Argentina peso (interbank)     36.5000     -0.71     -49.04
                                                   
 Argentina peso (parallel)           37      0.00     -48.03
                                                   
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Tom Brown)
  
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