June 6, 2019 / 2:12 PM / 4 months ago

EMERGING MARKETS-Tariffs, rating action hurt Mexican peso; other Latam currencies climb

    By Susan Mathew
    June 6 (Reuters) - Latin American currencies firmed against
a weak U.S. dollar on Thursday, while Mexico's peso dropped to
five-month lows amid concerns over the threat of U.S. tariffs
and following downgrades by rating agencies.
    The dollar weakened significantly in part due to the euro's
strength as the European Central Bank refrained from hinting at
an interest rate cut, and partly on rising speculation of an
interest rate cut by the U.S. Federal Reserve.
    Regional currencies rose between 0.1% and 0.5%, with higher
oil prices helping crude exporter Colombia's peso stay at
three-week highs.
    Moody's said on Wednesday Colombia's economic activity was
poised for a moderate pickup over the next two years, but warned
economic growth would not fully compensate for sector-specific
risks. 
    Mexico's peso slipped 0.9% to five-month lows.
    Late on Wednesday Fitch downgraded Mexico's sovereign debt
rating to BBB, nearing junk status, pointing to risks posed by
ailing state oil firm Pemex and trade tensions, while Moody's
lowered its outlook to negative. 
    The hit to sentiment was reinforced by U.S. President Donald
Trump saying "not enough" progress was made on ways to
curb the flow of migrants at the U.S. border with Mexico when
the two sides met for talks on Wednesday. 
    Talks are set to resume on Thursday led by the U.S. State
Department. Meanwhile, Mexico has prepared a list of U.S.
products that could face retaliatory tariffs, with a focus on
Republican-leaning agricultural states.

    "In our view, risks for the Mexico peso remain skewed to the
downside, given the threat of tariffs and the Mexican
administration's yet untested ability to respond and
coordinate," Morgan Stanley analysts wrote in a note. 
    Brazil's real rose 0.1%. 
    Responding to media reports, Brazil's economy ministry said
it had no plans to alter its spending ceiling rules, which cap
public spending growth at the rate of inflation.
    Stocks in Sao Paulo climbed 0.6% on broad-based
gains. 
    Electronics and appliance retailer Via Varejo was
the top gainer, up 4%, after it launched a digital bank on
Wednesday targeting low-income clients in partnership with
Boston-based startup Airfox.   
    On the pension reform front, a key Brazilian Congressional
committee report on pension reform - representing the next step
in the bill's passage through Congress - will not be presented
until next week, a source with knowledge of a matter
said.
    
    Key Latin American stock indexes and currencies at 1347 GMT:
                                        
    Stock indexes             Latest    Daily %
                                         change
 MSCI Emerging Markets         1002.60     -0.21
                                        
 MSCI LatAm                    2709.21      0.31
                                        
 Brazil Bovespa               96564.04      0.59
                                        
 Mexico IPC                          -         -
                                        
 Chile IPSA                    4966.24      0.18
                                        
 Argentina MerVal                    -         -
                                        
 Colombia IGBC                12013.36     -0.07
                                        
                                                
       Currencies             Latest    Daily %
                                         change
 Brazil real                    3.8750      0.50
                                        
 Mexico peso                   19.7620     -0.95
                                        
 Chile peso                      691.2      0.24
                                        
 Colombia peso                 3286.51      0.52
 Peru sol                         3.34       0.3
                                        
 Argentina peso                      -         -
 (interbank)                            
                                        
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Bernadette
Baum)
  
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