June 9, 2020 / 7:26 PM / 23 days ago

EMERGING MARKETS-Latam stocks, FX slip after risk rally; Fed in focus

    * MSCI Latam stocks index comes off 3-month high
    * Argentine stocks drop amid debt restructuring talks
    * Brazil's real should remain below 5 to the dollar- analyst

 (Adds details, updates to close)
    By Susan Mathew and Ambar Warrick
    June 9 (Reuters) - Latin American stocks and currencies fell
on Tuesday as investors cashed in after a stellar risk rally
over the last few sessions, with all eyes now on a U.S. Federal
Reserve meeting.
    As most Wall Street indexes pulled back, Brazil's Bovespa
 and Colombia's COLCAP index broke a
seven-session winning run, while Chilean stocks fell
after six sessions. Mexican shares lost 1.7%.
    The declines caused the broader Latin American shares
benchmark to come off a three-month high hit on
Monday.
    The recent rally was spurred by bets of a quicker than
expected economic recovery from a pandemic-fueled lull, and
helped emerging market assets recover significantly from this
year's lows hit in March. 
    Still, doubts persist over Latin American assets, as the
virus exacerbates weak economic fundamentals and political
uncertainty. 
    The market's focus turned to the Fed's two-day meeting
beginning on Tuesday. 
    The central bank is expected to keep interest rates
unchanged but the focus will be on whether policymakers still
sound cautious and introduce new measures, or reinforce the
upbeat tone set by the recent jobs data. 
    "With the U.S. economy showing signs of a rebound, our base
case suggests the Fed should be quite constructive for risky
assets," said Ned Rumpeltin, European head of FX strategy at TD
Securities. But he added that it need not necessarily translate
to dollar weakness.
    As oil prices slipped, currencies of crude exporters Mexico
 and Colombia slid 1.7% and 1.9% respectively,
retreating from three-month highs. 
    Data on Tuesday showed Mexican consumer price inflation
accelerated less than expected in May, remaining below the
central bank's target rate and creating room for more potential
interest rate cuts.
    Brazil's real fell 1%. Brazilian central bank
director Fabio Kanczuk said that while recent short-term changes
in asset prices will not affect the bank's monetary policy,
inflation would be watched.
    "The real has recently been able to benefit significantly
from the improved sentiment on the financial markets. However,
the domestic news flow remains worrying," said You-Na
Park-Heger, an analyst at Commerzbank. 
    "Against this backdrop, we consider the recent recovery to
be exaggerated and see the risk of a downward correction in the
real. In the medium term, however, the dollar-real should remain
below the 5.00 mark."
    Argentine stocks dropped more than 5% as
restructuring talks over its sovereign debt reached a final
sensitive stretch.
    
    Key Latin American stock indexes and currencies:
    
    Stock indexes             Latest    Daily % change
 MSCI Emerging Markets         1009.47             0.2
                                        
 MSCI LatAm                    2099.40           -0.85
                                        
 Brazil Bovespa               96674.69           -0.99
                                        
 Mexico IPC                   38978.13           -2.44
                                        
 Chile IPSA                    4124.43           -0.37
                                        
 Argentina MerVal             46382.91          -5.111
                                        
 Colombia COLCAP               1205.76           -1.83
                                        
                                                      
       Currencies             Latest    Daily % change
 Brazil real                    4.9024           -1.00
                                        
 Mexico peso                   21.8480           -1.63
                                        
 Chile peso                      769.8           -0.18
                                        
 Colombia peso                  3655.5           -1.50
 Peru sol                       3.4427           -0.23
                                        
 Argentina peso                69.1600           -0.12
 (interbank)                            
                                        
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Dan Grebler
and Tom Brown)
  
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