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Growth worries send Latam markets into a tailspin

By Sruthi Shankar Aug 7 (Reuters) – Latin American markets were swept up in a global sell-off of risk assets on Wednesday as investors sought safety in U.S. government debt and gold on fears that an escalating U.S.-China trade war will push the world’s largest economy toward recession. Benchmark U.S. Treasury yields fell across the board, with the yield curve between three-month bills and 10-year notes inverting to its deepest level since March 2007. This inversion has preceded every U.S. recession in the past 50 years. Evoking those fears were surprise interest rate cuts from a series of Asian central banks earlier in the day and weak German economic data, which added to worries about a worsening of the U.S.-China trade war. “With the outlook for the global economy taking a turn for the worse on the back of recent trade escalation and continued weak data, central banks are not hanging around before acting,” Morgan Stanley analysts wrote in a note. “One of the reasons for downgrading our view on EM currencies was the monetary policy divergence that opened up between a more hawkish-than-expected FOMC and still dovish EM central banks.” The Brazilian real fell more than 0.7% even as the country’s lower house of Congress approved the text of a far-reaching pension reform bill in a second round of voting. The currency has dropped in seven of the past eight days. The Mexican, Argentine, Chilean and Colombian pesos all fell between 0.2% and 0.9%. Financial markets have taken a beating this week after China let the yuan fall past the psychologically important 7 per dollar level on Monday amid growing U.S. tariff pressure, injecting volatility into currency markets. Meanwhile, the MSCI’s widely tracked MSCIEF index, which includes almost 1,200 stocks from 26 developing world countries, was down for an 11th straight day. If it cannot recover before the close, it will be confirmed as the second longest losing streak ever, only exceeded by two 12-day runs in 2015 when Greece’s debt crisis was building to a climax, and before that all the way back in September 1990. Brazil’s main Bovespa index fell more than 1%, mirroring losses in most emerging stock markets. Latin American stock indexes and currencies at 1422 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 969.28 -0.35 MSCI LatAm 2669.01 -0.87 Brazil Bovespa 101111.60 -1.03 Mexico IPC 39639.00 -0.37 Chile IPSA 4776.63 -0.03 Argentina MerVal 40809.64 -1.23 Colombia IGBC 12328.00 0.62 Currencies Latest Daily % change Brazil real 3.9840 -0.72 Mexico peso 19.6880 -0.58 Chile peso 714.8 -0.64 Colombia peso 3436 -0.32 Peru sol 3.382 -0.21 Argentina peso 45.7100 -0.90 (interbank) (Reporting by Sruthi Shankar in Bengaluru; additional reporting by Marc Jones in London; editing by Jonathan Oatis)

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