Latam stocks, FX ease as vaccine rally loses steam

Latin American stocks retreated from eight-month highs on Thursday and regional currencies traded in tight ranges, tracking a global pullback in equities as tighter coronavirus restrictions dented risk sentiment.

A gauge of Latin American stocks fell 1% after hitting its highest level since March 9 in the previous session, while its currencies counterpart dropped 0.6%.

Optimism about encouraging vaccine developments provided an initial boost to risk assets in the region, but the rally ran out of steam as it did last week, after several countries announced record infection rates and tougher lockdowns.

While analysts have said the advent of a COVID-19 vaccine could spur inflows into riskier Latin American assets, short-term headwinds remain with regard to uncertainty over the availability and timeline of vaccine distribution.

The Brazilian real traded marginally lower, receiving some support after the country's economy minister said Latin America's largest economy could surprise on the upside and grow more than 4% next year.

Brazil's central bank said on Wednesday it will intervene in the foreign exchange market if the market is unable to absorb the "large" outflow of reais expected by the end of the year as local banks unwind their so-called overhedge position.

"Although there are multiple factors pointing to a positive outlook for Brazil in the short to medium term-including the stronger-than-expected recovery and preparations for mass vaccination, the fiscal outlook remains troubling," analysts at TS Lombard wrote in a note, adding that progress in fiscal reforms was a sticking point for the government's credibility.

Brazilian stocks traded 0.3% higher.

Mexico's peso strengthened 0.4% during the day and was set to snap a two-day losing streak.

The currency has fared better than its Latam peers this year after the country's central bank recently signaled a pause to its aggressive cycle of interest rate cuts, while Joe Biden's victory in the US presidential election has also raised hopes for more stable trade policies.

Mexico earlier this week completed a debt refinancing operation worth $6.6 billion in international markets, including a heavily over-subscribed bond offer.

Chile's peso edged down, tracking weakness in prices of copper, while Colombia's peso fell 0.2% as oil prices dipped after surging COVID-19 cases around the world raised worries over fuel demand.

Peru's sol was on track to end a two-day winning streak, after the appointment of Francisco Sagasti as the Andean nation's interim president restored some calm in markets.