Jan 4 (Reuters) - Latin American stocks extended declines on Thursday, while the U.S. dollar and Treasury yields gained modestly as investors adjusted bets of early rate cuts after the Fed's meeting minutes shed little light on the timeline for reduced borrowing costs.
The MSCI index tracking Latin American stocks .MILA00000PUS was down 0.4% by 1518 GMT, while a basket of regional currencies .MILA00000CUS was muted against a steady dollar.
The broader stock index has declined for three consecutive sessions since the start of the New Year.
Minutes of the Fed’s December policy meeting released on Wednesday reflected a growing sense that inflation is under control among policymakers and growing concern about the risks that “overly restrictive” monetary policy may pose to the economy.
However, the minutes did not provide direct clues about when rate cuts might commence.
“I feel nothing too surprising came from the minutes. If anything, their dialogue, and notes seemed to share the general idea that the economy has been resilient, and they are yet to see any signs of deterioration,” said Juan Perez, director of trading at Monex.
“In that case, it will really be a matter of “wait-and-see” while interest rates may stay higher for longer than markets want to price-in,” Perez added.
Latin American assets enjoyed a stellar end to 2023, its best in years, a rally fueled by the Fed’s dovish stance.
But 2024 has not been a kind start as optimism around early rate cuts faded that helped the dollar and Treasury yields gain some momentum.
Adding to the uncertainty, a stronger-than-expected private payrolls report indicated resilience in the U.S. labor market, raising further questions on the timeline of reduced borrowing costs.
Brazil’s Bovespa index .BVSP slid 0.7%, leading broader equity declines, and the real BRL= was steady
Brazil’s services purchasing manager’s index (PMI) fell in December, while producer prices also decreased in November.
Mexican shares .MXX were muted, while the peso MXN= slipped 0.2% ahead of the Banxico’s meeting minutes due later in the day.
“I believe they (Banxico) will be perhaps slightly more dovish than the Fed,” Perez added.
Among other regional bourses, Chile’s IPSA index .SPIPSA fell 0.2%, while the Colombia’s Colcap index .COLCAP and Peruvian shares .SPBLPGPT advanced 1.5% and 0.7% respectively.
Argentina’s Merval index .MERV climbed 1.5%, while a top court on Wednesday suspended a package of labor reforms decreed by new President Javier Milei last month, after the nation’s largest union filed an injunction.
Currency of the world’s top copper producer – the Chilean peso CLP= dropped 0.7% tracking lower copper prices.
Reporting by Siddarth S in Bengaluru Editing by Nick Zieminski
