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Latam stocks, FX slides on rate-hike jitters

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Latin American stocks slumped nearly 3%,

while major currencies lost ground against a firming dollar on

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Tuesday amid a risk-off sentiment due to rising fears of rate

hikes and a global slowdown, with Chilean peso down ahead of

central bank decision.

Brazil’s benchmark Bovespa stock index fell 2.2% and

the currency real slipped 1.6% against the dollar after a

senior policymaker said Brazil’s central bank will need to be

cautious about handling the end of its current tightening cycle

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and may still raise interest rates this month, underscoring that

inflation is only beginning to subside.

Volatility ahead of the upcoming elections continued, with

recent polls showing former President Luiz Inacio Lula da Silva

leading in the presidential race, followed by current President

Jair Bolsonaro.

“Bolsonaro still has a 20–25% chance of being re-elected,

thanks in large part to his use of government spending to

increase support… Additional fiscal expansion ahead of the

election next month cannot be ruled out,” TD Securities

strategists Elizabeth Johnson and Wilson Ferrarezi said in a


Chilean stocks slumped 2.65% as a market rally

following the rejection of a proposed new progressive

constitution petered out. Rating agency Fitch said the rejection

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of new constitution prolongs uncertainties stemming from

constitutional reform.

The peso fell 1.3% ahead of the decision later in the

day where the Central Bank of Chile is expected to raise its

benchmark interest rate to 10.50% from 9.75% previously.

Also weighing on resource-rich Latam currencies, crude

prices fell, triggered by concerns over crumbling demand amid

new COVID-19 lockdowns in China and the possibility of more

interest rate hikes.

Currencies of major crude exporters including Colombia’s

peso and Mexico’s peso lost 0.4% and 0.7%,


Broadly pressuring emerging market currencies, the U.S.

dollar index climbed 0.55% after a report on the U.S.

services industry in August reinforced the view that the economy

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was not in recession, while U.S. interest rates stay poised for

sharp rises and as recession talk stalks Europe.

“With the global economy slowing and interest rates rising,

new orders (both external and domestic) are likely to remain

soft across much of the emerging world over the coming months…

High inflation has also played a role in dampening domestic

demand,” said William Jackson, chief emerging markets economist

at Capital Economics.

Latam currencies and stocks have been under pressure this

year on risks of drying-up capital inflows, spiraling

inflation, geopolitical risks and fears of an acute global

economic downturn.

Key Latin American stock indexes and currencies at 1900 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 964.02 -0.39

MSCI LatAm 2126.03 -2.91

Brazil Bovespa 109689.71 -2.24

Mexico IPC 45938.12 -0.19

Chile IPSA 5622.20 -2.65

Argentina MerVal 137597.07 -0.485

Colombia COLCAP 1225.07 -0.94

Currencies Latest Daily % change

Brazil real 5.2353 -1.58

Mexico peso 20.1362 -0.75

Chile peso 892.9 -1.32

Colombia peso 4473.95 -0.36

Peru sol 3.897 -0.54

Argentina peso (interbank) 140.5600 -0.22

Argentina peso (parallel) 272 -0.74

(Reporting by Anisha Sircar, Amruta Khandekar and Devik Jain in

Bengaluru; Editing by Jonathan Oatis and Lisa Shumaker)



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