Latin American markets tumble on downbeat economic data

Mexican economy shrinks in December U.S. short-term yields rise, March Peru's sol falls as more Las Bambas disruption is expected Adds details, updates prices by Susan Mathew and Ambar Warrick Jan 18 Reuters -- Mexico's peso retreated from two month highs on Tuesday on downbeat economic growth data, while rising U.S. Treasury yields and a stronger dollar pressured emerging markets. The peso fell by 0.6% after data showed Mexico's economy likely shrank by 0.2% in December compared with the same month a year ago, pointing to a sluggish performance in the final quarter of 2021. In the first quarter, JPMorgan strategists expect a pick up in political noise, due to disagreements over regulation in the country's energy sector, and President Andres Manuel Lopez Obrador's mandate to hold a recall referendum halfway through his term to decide if he stays in office. Peru's sol dropped 0.1% after Peruvian communities rejected a government proposal to prevent further blockades at the Las Bambas copper mine, pointing to more disruptions in the country's key copper exports. The budget was approved by the Congress. The veto was made to restore room for spending that was underestimated by Congress. The approval of the budget should give markets some relief after some hectic months, and JPM strategists said that the central bank's aggressive hiking cycle should also provide support, as well as a bullish bias on Brazilian local assets. Our economists expect a further 150 basis point hike in February, followed by a final 100 bp one in March, which should take the policy rate to 11.75%. As inflation starts to move lower, real rates will look more appealing. With investors starting to price in a message from the U.S. Federal Reserve at its meeting next week, the U.S. Treasury yield went up, and lifted the dollar, pushing riskier assets. Colombia's peso was down 0.7% despite oil prices at 7 year highs. Most Latin American stocks retreated, tracking steep losses in Wall Street. Russia's rouble sank more than 1% as tensions between Moscow and the West showed little signs of abating. After visiting Ukrainian leaders in Kyiv and European officials in Berlin this week, U.S. President Joe Biden's top diplomat will try to defuse a crisis with Moscow over Ukraine.