June 5, 2018 / 10:45 PM / in 18 days

EMERGING MARKETS-Mexico peso slumps on NAFTA, Brazil currency eases

 (Updates prices)
    By Bruno Federowski
    BRASILIA, June 5 (Reuters) - The Mexican peso on Tuesday
fell to its weakest since February 2017 after the United States
raised the possibility of turning negotiations over the North
American Free Trade Agreement into bilateral talks.
    White House economic adviser Larry Kudlow said on Tuesday
U.S. President Donald Trump is considering holding separate
talks with Canada and Mexico, adding fuel to concerns the United
States could scrap NAFTA.
    Kudlow's remarks accentuated a selloff in the peso that was
triggered by Mexico's imposition of retaliatory measures against
U.S. tariffs on imports of Mexican steel and aluminum.

    The peso weakened as much as 1.9 percent to 20.46 to the
dollar. In a client note, strategists at Continuum Economics
said the central bank could consider hiking rates or intervening
in currency markets if the currency broke past the 20.50 mark.
    Concerns over U.S. protectionism, coupled with rising U.S.
bond yields, are weighing on demand for emerging-market assets.
    Brazilian stocks and currencies also closed sharply down.
    Uncertainty about this year's elections in Brazil caused the
real to close at 3.81 per dollar, a drop of 1.78 percent.
    A poll on Tuesday showed increased polarization ahead of
Brazil's October presidential elections, with far-right lawmaker
Jair Bolsonaro leading the ballot followed by center-left
populist Ciro Gomes.
    "A leftist candidate seems to be more competitive than a
market-friendly candidate," a portfolio manager at a São
Paulo-based brokerage said.
    Demand for Brazilian assets has also suffered in the wake of
nationwide truckers' strikes in the final weeks of May that
drove policymakers to subsidize diesel prices.
    Traders remain fearful the government will be forced to
employ other costly measures to curb political instability,
stepping back from efforts to stem a growing budget deficit.
    
    Key Latin American stock indexes:
 Stock indexes                 Latest        Daily     YTD
                                               pct     pct
                                            change  change
 MSCI Emerging Markets          1,145.17     -0.14   -1.01
                                                    
 MSCI LatAm                     2,565.86     -1.46   -7.93
                                                    
 Brazil Bovespa                77,796.44     -1.02    1.83
 Mexico IPC                    45,275.94      0.07   -8.26
 Chile IPSA                     5,547.93     -0.19   -0.30
 Chile IGPA                    28,049.50     -0.17    0.25
 Argentina MerVal              29,866.07      2.86   -0.66
 Colombia IGBC                 12,450.08      0.12    9.49
 
 (Reporting by Bruno Federowski
Additional reporting by Claudia Violante in São Paulo
Editing by Chris Reese)
  
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