In the News

EMERGING MARKETS-Brazil’s Bovespa, FX lead Latam lower

NEW YORK, Dec 12 (Reuters) - Latin American stocks and currencies sold off on Monday, with Brazil's main stock index down 2.5% as investors braced for a slew of central bank meetings this week that could set the tone for the year ahead.

  • Colombia’s central bank set for December rate hike – poll
  • Peru President pledges early elections amid protests
  • Mexico’s October industrial production rose by 0.4%

Weighing on Brazil’s Bovespa stock index were banks, state oil firm Petrobras and miner Vale with analysts citing reports of leadership changes at Petrobras and the National Bank for Economic and Social Development (BNDES) as sowing uncertainty. President-elect Luis Inacio Lula da Silva, a leftist, takes office on Jan. 1 after winning a runoff vote in October.

Petrobras shares slumped 4.3%, while the Brazilian real tumbled 1.6% against the dollar.

“If it’s a leftist leader or left of center leader that is trying to change something that is not only a combination of public works but private works that sends a fearful message to markets that things are going to be dramatically changing on the pro-business side,” said Juan Perez, director of trading at Monex USA.

“And, with Lula, that was one of the things that has been feared ever since he was campaigning for re-election.”

While several emerging market central banks look to ease their interest rate hiking cycles after starting early and going big, continued hikes by other major central banks such as the
U.S. Federal Reserve and the Europe Central Bank could pose a threat to risk sentiment and interest rate differentials that make riskier currencies appealing.

Uncertainty looms as markets keenly wait to see if the Fed will indeed opt for smaller hikes after four straight 75 basis point hikes, while the ECB and the Bank of England are both
expected to strike a hawkish stance.

Central bank decisions from Mexico and Colombia are awaited this week. Declines in Mexico’s peso were capped by data showing Mexican industrial output rose 0.4% in October from September.

Colombia’s peso dropped 1%. Its central bank is set to raise interest rates at its final meeting of the year and will be under pressure for another hike starting in 2023 as inflation
expectations keep rising and economic growth remains at potential, a Reuters poll showed.

MSCI’s index of Latam currencies fell 1.2%, while stocks slid 3%. Peru’s sol outperformed, jumping 0.6% after Peru’s new President Dina Boluarte on Saturday named a Cabinet with
Deputy Finance Minister Alex Contreras appointed as finance minister.

Strategists at Citigroup said the appointment of Contreras “is technocratic, and thus should reduce perceived risks of strong changes in macro management.” With Contreras as finance minister and Julio Velarde heading the central bank, “both fiscal and monetary policy remains under market friendly leadership, despite the political noise,” they said.

On Monday Boluarte said she would submit a bill to Congress to bring general elections forward two years to April 2024, amid protests in the Andean nation following the ouster of former leader Pedro Castillo.

 

Reporting by Susan Mathew and Bansari Mayur Kamdar in Bengaluru; editing by Grant McCool
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