EMERGING MARKETS-Weak economic data pulls Mexico’s peso from two-month highs

By Susan Mathew Jan 18 (Reuters) – Mexico’s peso retreated from two-month highs on Tuesday on downbeat economic growth data, while broader emerging market peers were pressured by rising U.S. Treasury yields and a stronger dollar. The peso slipped 0.3% 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. The currency is down 0.8% this month after surging 4.7% in December. JPMorgan strategists expect to see a pick-up in political noise during the first quarter as the electricity bill, which seeks to increase state influence over the market, and President Andres Manuel Lopez Obrador’s mandate to hold a recall referendum halfway through his term to decide if he continues in office, gain steam. Brazil’s real was up 0.3% in volatile trade with the deadline 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, nearing. 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 0.3%. Currencies of Chile and Peru outperformed, up 0.3% and 0.2% respectively. Among stocks, Brazil’s Bovespa was boosted by miner Vale which, along with other miners resumed production in the southeastern state of Minas Gerais after halting some operations due to heavy rains that disrupted logistics and increased the risk of accidents. Key Latin American stock indexes and currencies at 1424 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1242.52 -0.95 MSCI LatAm 2210.77 -0.12 Brazil Bovespa 106511.83 0.13 Mexico IPC – – Chile IPSA 4467.80 -0.12 Argentina MerVal 84335.26 -0.827 Colombia COLCAP 1522.21 6.31 Currencies Latest Daily % change Brazil real 5.5116 0.25 Mexico peso 20.3469 -0.32 Chile peso 818.9 0.37 Colombia peso 4027.01 -0.59 Peru sol 3.8487 -0.17 Argentina peso 104.1800 -0.09 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Andrea Ricci)

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