EMERGING MARKETS-Latam FX dips as U.S. yields rise, Mexican economy shrinks

BY Reuters | TREASURY | 01/18/22 02:38 PM EST
       * Mexican economy shrinks in December
    * U.S. short-term yields rise, rate hike seen in March
    * Peru's sol falls as more Las Bambas disruption expected

 (Adds details, updates prices)
    By Susan Mathew and Ambar Warrick
    Jan 18 (Reuters) - Mexico's peso retreated from two-month
highs on Tuesday on downbeat economic growth data, while broader
emerging markets were pressured by rising U.S. Treasury yields
and a stronger dollar.
    The peso slipped 0.6% after data showed Mexico's
economy likely shrank by 0.2% in December compared with the same
month a year earlier, pointing to a sluggish performance in the
final quarter of 2021.
    JPMorgan strategists expect to see a pick-up in political
noise during the first quarter amid contention over increased
regulation in the country's energy sector, and President Andres
Manuel Lopez Obrador's mandate to hold a recall referendum
halfway through his term to decide if he continues in office.

    Peru's sol dropped 0.1% after Peruvian communities
rejected a government proposal to prevent further blockades at
Las Bambas copper mine, pointing towards more disruptions in the
country's key copper exports.
    Brazil's real sank 0.8% in volatile trade as the
deadline loomed for President Jair Bolsonaro to sign the 2022
budget, which could see a government veto of up to 9 billion
reais ($1.63 billion) in the 2022 budget bill.
    The Congress has already approved the budget. The veto was
made to restore room for spending that was underestimated by
Congress.
    "The approval of the budget should offer markets some relief
after some hectic months and we keep a bullish bias on Brazilian
local assets," JPM strategists said, adding that the central
bank's aggressive hiking cycle also provides support.
    "Our economists expect another 150 basis point hike in
February, followed by a final 100bp one in March which should
take the policy rate to 11.75%.... and as inflation starts to
move lower, real rates will look increasingly appealing."
    With investors starting to price in a hawkish message from
the U.S. Federal Reserve at its meeting next week, U.S. Treasury
yields surged, and lifted the dollar, pressuring riskier assets.

    Despite oil prices at 7-year highs, Colombia's peso
lost 0.7%.
    Most Latin American stocks retreated, tracking steep losses
in Wall Street.
    Elsewhere, Russia's rouble sank more than 1% as
tensions between Moscow and the West showed little signs of
abating.
    U.S. President Joe Biden's top diplomat will seek to defuse
a crisis with Moscow over Ukraine when he meets the Russian
foreign minister in Geneva this week following visits with
Ukrainian leaders in Kyiv and European officials in Berlin.

    Key Latin American stock indexes and currencies:

                              Latest      Daily % change
 MSCI Emerging Markets         1240.84               -1.08

 MSCI LatAm                    2195.06               -0.83

 Brazil Bovespa              106183.26               -0.18

 Mexico IPC                   53391.20               -1.08

 Chile IPSA                    4503.31                0.67

 Argentina MerVal             83495.45              -1.815

 Colombia COLCAP               1578.89                3.72


       Currencies             Latest      Daily % change
 Brazil real                    5.5705               -0.81

 Mexico peso                   20.4143               -0.65

 Chile peso                      818.6                0.38

 Colombia peso                  4033.2               -0.74
 Peru sol                       3.8473               -0.13

 Argentina peso               104.1600               -0.07
 (interbank)


 (Reporting by Susan Mathew in Bengaluru; Editing by Andrea
Ricci and Sandra Maler)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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