Mexico peso skids as inflation spirals in August; Brazil’s real shines

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Mexico’s peso was the sole decliner among

major Latin American currencies on Thursday after inflation in

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August was seen racing to a more than two-decade high, while

Brazil’s real outshined peers on a boost from stronger commodity

prices.

Annual inflation in Latam’s second-largest economy rose to

8.70% last month, the highest in nearly 22 years. The peso

slipped 0.3% while stocks fell 0.2%.

“This will strengthen the case for Banxico to deliver a

third consecutive 75 bps rate increase this month, but with

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Mexico’s economy struggling and the Federal Reserve likely to

slow the pace of tightening, Banxico could opt for 50 bps,” said

Jason Tuvey, senior EM economist at Capital Economics.

“The bigger picture is that Mexico’s tightening cycle is

drawing to a close.”

Broader Latam stocks were lifted by a 0.3%

gain in Brazil’s Bovespa after mining giant Vale

said it sees a 44% increase in global nickel demand

by 2030, pushing Vale’s shares 0.4% higher.

Brazil’s real jumped 0.8% as prices of key

export commodities gained.

Crude prices rose after Russia threatened to halt oil and

gas exports to some buyers, while iron ore futures firmed after

China’s Zhengzhou said it would start building stalled housing

projects, soothing worries about weak steel demand.

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Oil exporter Colombia’s peso inched up 0.3%, while

stronger copper prices lent support to Chile’s peso and

Peru’s sol, up 0.4% and 0.7%, respectively.

Investors await an interest rate decision from Peru later in

the day, with analysts expecting a rate increase by 25 or 50

basis points.

Latam’s currency gains were despite a stronger dollar, which

rose 0.3% following hawkish comments from Fed Chair Jerome

Powell, who said the bank is “strongly committed” to controlling

inflation.

“We’re going to see a lot of choppy price action because of

so many moving parts – the Fed’s outlook remains very hawkish,

which is negative for EM currencies given the interest rate

differential narrowing that implies,” said Christian Lawrence,

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senior cross-asset strategist at Rabobank.

“The risk of a global recession is causing significant

inflows into the world reserve currency. There’s a huge supply

and demand imbalance in the onshore and offshore dollar market,

which is the big picture story for EMs.”

The euro, meanwhile, held above a 20-year low after the

European Central Bank raised interest rates by a record 75 basis

points.

Elsewhere, China debt markets lost $7.7 billion in August in

a seventh straight month of portfolio outflows, data from the

Institute of International Finance showed. EMs ex-China enjoyed

portfolio inflows, with equities gaining $20.3 billion and debt

attracting $13.5 billion.

Key Latin American stock indexes and currencies at 1505 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 956.85 0.04

MSCI LatAm 2148.89 0.82

Brazil Bovespa 110026.24 0.24

Mexico IPC 46092.54 0.08

Chile IPSA 5567.03 0.47

Argentina MerVal 141093.06 0.065

Colombia COLCAP 1201.58 -0.72

Currencies Latest Daily % change

Brazil real 5.2161 0.44

Mexico peso 20.0182 -0.26

Chile peso 880.9 0.30

Colombia peso 4393.25 0.00

Peru sol 3.8711 0.19

Argentina peso 141.1300 -0.22

(interbank)

Argentina peso 277 2.53

(parallel)

(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru;

Editing by Andrea Ricci)