Brazil’s currency and stock index
slumped on Monday amid rising tensions ahead of the presidential
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.
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
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
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
meant to counteract inflation.
Key Latin American stock indexes and currencies at 1950 GMT
Stock indexes Latest Daily %
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 %
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)