Thursday, December 1

Brazil’s real, Bovespa slump ahead of weekend presidential run-off


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Brazil’s currency and stock index

slumped on Monday amid rising tensions ahead of the presidential

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run-off over the weekend, while investors also looked ahead to a

slew of regional central bank decisions for clues on the

interest rate hikes.

Emerging market stocks fell 2.7% to 2-1/2 year

lows and were on course for their worst session in over four

months as China stocks were routed on policy after worries

President Xi Jinping won a third term and appointed loyalists to

the leadership team.

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In Brazil, the real slide 2.8% after an ally of

President Jair Bolsonaro wounded two policemen while resisting

arrest ordered by the country’s Supreme Court.

Leftist presidential candidate Luiz Inacio Lula da Silva

has increased his lead slightly over his far-right adversary

Bolsonaro, according to a poll which was completed before the

shooting incident on Sunday.

“This is seen as a hard hit to the president’s campaign

just because Bolsonaro always tries to support his speech on

crime and more law and order to his voters and this event is

seen as negative for his campaign efforts,” said Wilson

Ferrarezi, economist at TS Lombard.

“It seems that this has sparked some concerns that

former president Lula might benefit from this episode. What

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happened over the weekend was really unexpected… there could

be more market volatility in the coming days.”

Markets had cheered a stronger showing for Bolsonaro in the

first round earlier this month. Bolsonaro’s agenda is seen as

more market-friendly than Lula’s.

Brazilian stocks dropped 3.2%, leading declines

among its peers. The broader Latam stock index

lost 3.5%, on pace for its worst day since late Sept.

A drop in prices of commodities such as copper and oil also

weighed on the export-heavy region’s assets. Currencies of

Chile and Colombia dipped 1.4% each, while

Mexico’s peso slipped 0.1%.

In Mexico, data showed annual inflation slowed more than

expected in the first half of October to 8.53% but remained far

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above the central bank’s target rate of 3%. Annual core

inflation, which strips out some volatile food and energy

prices, rose more-than-expected.

“Core inflation continued to power ahead… making a 75bps

rate hike in early November a done deal,” Natalia Gurushina, EM

fixed income economist at VanEck, said in a note.

“The market sees a slower pace of tightening after the

November hike (around 75bps through Q1-2023) – a reasonable

expectation, given that Mexico’s real policy rate is already

positive, based both on headline and expected inflation (a

rarity these days).

In Colombia, the central bank board is expected to raise

the benchmark interest rate by 100 basis points to 11% later

this week, which is likely its penultimate increase in a cycle

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meant to counteract inflation.

Key Latin American stock indexes and currencies at 1950 GMT

Stock indexes Latest Daily %

change

MSCI Emerging Markets 842.04 -2.66

MSCI LatAm 2203.59 -3.53

Brazil Bovespa 116140.02 -3.16

Mexico IPC 47884.02 1.62

Chile IPSA 5108.41 -0.76

Argentina MerVal 139978.29 0.744

Colombia COLCAP 1208.75 -1.86

Currencies Latest Daily %

change

Brazil real 5.2967 -2.79

Mexico peso 19.9260 -0.09

Chile peso 986.4 -1.47

Colombia peso 4975.93 -1.40

Peru sol 3.9873 -0.34

Argentina peso (interbank) 154.7200 -0.58

Argentina peso (parallel) 287 1.39

(Reporting by Susan Mathew and Devik Jain in Bengaluru and

Luana Maria Benedito in Brasilia;

Editing by Alistair Bell)

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