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Brazilian real, Mexican peso rise; Latam stocks track Wall St higher

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The Brazilian real and Mexican peso

rose on Monday against a softer dollar, while regional stock

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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.

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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

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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

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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

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America helped to boost risk appetite. The dollar index

dipped 0.8%.

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)

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