Latam FX, stocks slip as dollar firms, Mideast risks weigh

By Utkarsh Hathi and Ragini Mathur

Latin American stocks and currencies opened the new quarter lower on Wednesday, pressured by a firmer dollar and cautious risk sentiment as uncertainty over the Middle East persisted.

MSCI's regional currency index (.MILA00000CUS) edged 0.2% lower, pulling back after notching a sixth consecutive quarterly gain in the previous session. The equivalent stocks gauge (.MILA00000PUS) declined 0.4%.

Investors remained cautious after hopes for a durable de-escalation between the U.S. and Iran faded earlier in the day, following Iran's refusal on Tuesday to engage with the U.S. in Doha. Later, however, President Donald Trump said the U.S. was getting along very well with Iran and that recent meetings in Qatar went well.

Crude prices have remained near pre-conflict levels in recent weeks, easing fears of a prolonged energy supply disruption. Still, markets continue to assess the broader economic fallout, as well as expectations that the Federal Reserve will keep policy restrictive amid resilient U.S. economic conditions.

The dollar benefited from those expectations, starting the month on a stronger note after logging its best monthly performance in about a year in June.

Brazil's real FX_IDC:USDBRL slipped 0.8% against the dollar, while the Bovespa stock index BMFBOVESPA:IBOV fell 0.4%.

Manufacturing activity in Brazil, the region's largest economy, expanded in June, data showed.

"We have to see more positive data in coming weeks and months to confirm that there is a sustained recovery," said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

"The main issue in Brazil is still very tight monetary policy, and you have to couple that to political uncertainty due to the presidential election that is nearing."

Brazil is due to hold general elections in October this year, keeping political risk firmly on investors' radar.

U.S. Secretary of State Marco Rubio on Tuesday congratulated conservative Keiko Fujimori on winning Peru's presidential election, saying the Trump administration looked forward to deepening cooperation with her government.

Peru, along with Colombia, was among the latest countries in the region to shift rightward. Assets in both countries had benefited from expectations of more market-friendly governments taking power.

"In Peru, the fragmented Congress points to a difficult time, despite the relatively business-friendly approach or outlook that we will have with the Fujimori administration," Abadia said.

Peru's monthly consumer prices rose 0.23% in June, following a 0.16% decline in May.

Equities in Peru (.MXNUAMPESCPGPE) fell 0.2%, while the sol FX_IDC:USDPEN was up 0.2%.

Colombia's COLCAP index BVC:ICAP rose 0.3%, and the peso FX_IDC:USDCOP declined 0.5%.

Mexico's main stock index BMV:ME was down 0.3%, while the peso FX_IDC:USDMXN depreciated 0.3%.

Trade chiefs from the United States, Mexico and Canada were expected to meet virtually on Wednesday to discuss whether to extend the USMCA trade pact for another 16 years. The U.S. administration, however, was expected to formally signal that it will not extend the agreement.

In Chile, stocks BCS:SP_IPSA edged 0.3% higher, while the peso FX_IDC:USDCLP fell 0.5%.

Chile's economic activity declined in May, central bank data showed, missing market forecasts and falling for a fifth consecutive month, dragged down by weakness in the key mining sector of the world's largest copper producer.

Key Latin American stock indexes and currencies at 14:59: