The Brazilian real and Mexican peso
rose on Monday against a softer dollar, while regional stock
indexes tracked a rally on Wall Street as investors took heart
from a reversal in the United Kingdom’s fiscal plan which had
sent jitters across the markets in recent weeks.
The real gained 0.6% against the dollar, while
the peso added 0.3%. The broader Latin American
currencies index inched 0.1% lower.
“In a number of the Latam countries, especially Brazil, the
balance sheets are decent, they have current account surpluses.
They’ve been some of the best places to hide in the EM space as
they are holding their weight against the dollar more so than
others,” said Rachel Ziemba, founder of Ziemba Insights.
“But ultimately this is still an environment where, with
more Federal Reserve hikes to come, it’s going to be hard for EM
and risk assets to hold much ground.”
Economic activity in Brazil fell much more than expected in
August, a central bank index showed.
“The question is whether negative economic surprises like
this could tip the balance of risks against the incumbent
(President Jair Bolsonaro) in the hotly contested presidential
elections,” Natalia Gurushina, EM fixed income economist at
VanEck, said in a note.
“The next important data point is mid-month inflation (out
on Oct. 25) – and further disinflation is a ‘must’ both for
Bolsonaro and the central bank, which contemplates ending its
aggressive tightening cycle.”
Analysts predict the central bank’s aggressive monetary
tightening to tame inflation should impact activity in the
second half, overshadowing the effects of increased public
spending by Bolsonaro’s government.
A poll published on Monday showed leftist former president
Luiz Inacio Lula da Silva is leading right-wing Bolsonaro with
48.1% voter support against the incumbent’s 41.8% ahead of an
Oct. 30 runoff vote.
“As far as going into the second round, we do think that
Lula will probably win. Past the election we are somewhat less
concerned about Lula related FX volatility – and part of that
goes back to Lula understanding that Brazil’s public finances
are in a difficult spot,” said Brendan McKenna, international
economist and FX strategist at Wells Fargo Securities.
“So we have a view that a lot of the BRL depreciation is
going to be more Fed driven than politically driven.”
Brazil’s Bovespa index added 1.7%, with planemaker
Embraer SA climbing 6.4% after saying it had closed a
$650 million revolving credit facility with a group of national
and international financial institutions.
Overall, Latin American stocks advanced
1.5%, tracking a stellar rally on Wall Street after Britain’s
new finance minister ditched most of the government’s
“mini-budget,” while better than expected earnings from Bank of
America helped to boost risk appetite. The dollar index
The Peruvian sol rose 0.3% after data showed economic
growth picked up slightly in August.
Chile’s peso slid nearly 1% against the dollar.
In Argentina, the government will give workers tax relief
from November by raising the threshold at which income tax is
charged, as the country battles with inflation forecast to climb
as high as 100% by the end of the year.
Key Latin American stock indexes and currencies at 1949 GMT:
Stock indexes Latest Daily % change
MSCI Emerging Markets 866.14 0.33
MSCI LatAm 2153.87 1.5
Brazil Bovespa 113986.05 1.71
Mexico IPC 46363.99 2.03
Chile IPSA 5103.06 2.63
Argentina MerVal 139110.96 1.326
Colombia COLCAP 1168.32 -0.79
Currencies Latest Daily % change
Brazil real 5.2914 0.60
Mexico peso 20.0137 0.30
Chile peso 971.4 -1.18
Colombia peso 4729.13 -0.78
Peru sol 3.966 0.30
Argentina peso (interbank) 152.5000 -0.54
Argentina peso (parallel) 283 2.47
(Reporting by Bansari Mayur Kamdar and Devik Jain in Bengaluru
Editing by Mark Potter and Matthew Lewis)