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LATAM FX little changed, stocks down 0.11%

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Mexico's headline inflation rises

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Ukraine bonds slip as tensions escalate

By Nikhil Sharma

May 22 (Reuters) - Latin American assets fell on

Thursday, pressured by a drop in commodity prices and mounting

anxiety over the U.S. fiscal cliff which subdued investor

appetite.

MSCI's gauge for regional equities extended

its slide from the prior session, shedding 0.11%.

Trepidation over America's ballooning national debt reached

a fever pitch. This came as the U.S. House of Representatives

passed President Donald Trump's landmark tax and spending

overhaul - a bill widely anticipated to saddle the world's

largest economy with a significantly heavier debt burden.

The nonpartisan Congressional Budget Office projects this

legislative package will inject approximately $3.8 trillion into

the federal government's already $36.2 trillion debt ledger over

the coming decade.

This mounting fiscal pressure was a key catalyst behind

Moody's decision last week to strip the U.S. of its top-tier

credit rating.

Investors, already skittish from Trump's unpredictable

tariff pronouncements, are increasingly voting with their feet,

trimming exposure to U.S. assets in a bid to cultivate more

geographically diversified portfolios.

This pivot has provided a tailwind for emerging market

currencies, as fears of an economic slowdown in the U.S. begin

to erode the dollar's once unshakeable safe-haven allure.

The MSCI regional currencies index held

steady, though its 2025 year-to-date performance boasts a 13%

gain.

PESO TICKS UP

In Mexico, the peso ticked up 0.1% after the

country's headline inflation rose more than expected in the

first half of May, data showed, jumping outside the central

bank's target range for the first time this year.

Separate data revealed the economy shrank 0.4% in March from

February, while expanding 2.5% from March of 2024.

These challenging indicators throw a wrench into the Bank of

Mexico's monetary easing ambitions. The central bank, having

last week delivered a 50 basis-point cut to its benchmark rate

and hinted at further reductions, now faces a delicate balancing

act.

"The situation here is very complicated. Banxico will have

to cut interest rates, but the bad news is that inflation is

also trending higher, which will limit the room for maneuver of

Mexico," said Andres Abadia, chief LatAm economist at Pantheon

Macroeconomics.

"Mexico will probably have to cut interest rates gradually,

modestly, from now on."

The country's main stock index IPC fell 0.38%,

dragged by bottler FEMSA and mining company Grupo

Mexico.

Brazil's real was trading flat, with a drop in crude

prices keeping gains in check. Oil prices fell on global supply

risks following a report that OPEC+ is discussing a production

increase for July.

The country's central bank, which hiked rates earlier this

month without providing any forward guidance, stressed the need

for stable inflation before it could halt its policy tightening

cycle.

The local benchmark stock index shed 0.2%, with

energy and mining constituents bearing the brunt of the

sell-off.

Revenue from commodity exports such as copper, iron ore,

crude oil and agricultural products is a key income for Latin

American economies.

Chile's peso was down 0.19%, as investors returned to

trading a day after a public holiday.

The Colombian peso fell 0.31%, while the Peruvian sol

managed a 0.27% gain.

Elsewhere, Ukraine's bonds with 2035 and

2036 maturity fell nearly 2 cents to the

dollar as tension with Russia escalated after Moscow said it had

shot down 105 Ukrainian drones over Russian regions, including

dozens heading towards Moscow.

Key Latin American stock indexes and currencies:

Equities Latest Daily %

change

MSCI Emerging Markets 1165.35 -0.78

MSCI LatAm 2253.92 -0.11

Brazil Bovespa 137565.04 -0.23

Mexico IPC 58343.87 -0.38

Argentina Merval 2339614.2 0.865

9

Chile IPSA 8395.06 -0.28

Colombia COLCAP 1640.02 -0.57

Currencies Latest Daily %

change

Brazil real 5.6421 0.05

Mexico peso 19.3325 0.1

Chile peso 945.27 -0.19

Colombia peso 4177.84 -0.31

Peru sol 3.668 0.27

Argentina peso (interbank) 1143 0.31

Argentina peso (parallel) 1145 2.62