Band Ambar Warrick and Susan Mathew
October 21 (Reuters) – The Brazilian real fell nearly 2% and stocks fell to their 11-month low on Thursday as concerns over budget spending were compounded by weak sentiment, with most other Latin American currencies declining as inflation fears were sapping risk appetite.
The truth BRBY fell to a new six-month low and the bond at 10 years BR10YT = RR hit its lowest level in three years after Economy Minister Paulo Guedes opened the door for a one-time violation of a constitutional spending cap to fund a larger social assistance program proposed by Brazilian President Jair Bolsonaro.
Guedes’ comments appeared to contradict Bolsonaro’s earlier assurances that Brazil could increase payments without stretching its strict fiscal rules.
The increase in fiscal risk saw the Bovespa stock index of Sao Paulo .BVSP scoring one-day losses of more than 3% four times since last month alone. The index is down almost 10% this year compared to the broader emerging markets index .MSCIEF stable trading since the start of the year.
The currency lost around 8% in 2021 against a rise of 0.7% for peers in broader emerging markets .MIEM00000CUS.
JPMorgan analysts are now expecting a 125 basis point hike next week and again in December. The monetary authority is already one of the most aggressively hawkish banks in the world as it tries to contain inflation, stoking fears of choking the economy.
Brazil and most other emerging market economies have struggled with high inflation this year, driven by rising fuel costs and global trade disruptions caused by the COVID-19 pandemic. The International Monetary Fund said inflation expectations remain anchored in Mexico, but not in Argentina.
mexican peso MXN = fell 0.4%, after peaking more than three weeks, with data showing retail sales held steady in August. A decline in oil prices also weighed on the Mexican peso, while the Colombian currency, an exporter of crude COP = fell 0.3%.WHERE
the soil of Peru PEN = edged down slightly as political uncertainty crept into the markets ahead of a key congressional vote on a new cabinet next week.
Still, the ground had rallied in recent sessions after President Pedro Castillo’s recent cabinet overhaul was seen as more subdued.
Among individual stocks, Brazilian oil major Petrobras PETR4.SA fell 3.5% after reporting lower production in the third quarter from a year ago, while Mexican conglomerate Alfa ALFAA.MX rose after raising the baseline profit forecast for 2021.
Construction company, Grupo Carso GCARSOA1.MX fell 2.2% after agreeing to repair Mexico City’s collapsed metro line at no cost to the government.
Brazilian fuel distributors Vibra BRDT3.SA and Raizen RAIZ4.SA collapsed following a protest by tanker drivers in Rio de Janeiro, which resulted in the shutdown of a fuel supply base they operate.
Main Latin American stock market indices and currencies:
Stock market indices
% daily change
MSCI Emerging Markets .MSCIEF
MSCI Latin America .MILA00000PUS
Brazil Bovespa .BVSP
Mexico CPI .MXX
Chile IPSA .SPIPSA
Argentina MerVal .MERV
Colombia COLCAP .COLCAP
% daily change
Real brazil BRBY
mexican peso MXN = D2
Chilean peso CLP = CL
Colombian peso COP =
Peruvian soil PEN = PE
Argentine peso (interbank) ARS = RASL
(Reporting by Ambar Warrick; editing by Jonathan Oatis and Alistair Bell)
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