Brazil’s real swings; Other Latam FX slip as hawkish Fed comment lifts dollar

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Brazil’s real was volatile on Monday

after a bruising week, while most other Latin American

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currencies slipped after hawkish warnings from the U.S. Federal

Reserve and concern about rising COVID cases in China.

Brazil’s real, which rose as much as 1.3% during the

session, was last down 0.3%.

Data on Monday showed economic activity in Brazil resumed

expansion in September, though less than expected. The data

suggested Brazil’s economy would still end the quarter in

positive territory.

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Lingering concerns over President-elect Luiz Inacio Lula da

Silva’s plan to seek a waiver on the government’s spending cap,

as well as uncertainty around his cabinet picks, saw the

currency lose 5% last week.

“Headlines increasingly point to changes that would expand

the 2023 deficit by a wider margin than we expect, around BRL

175 billion,” economists at J.P.Morgan said.

Fiscal and political decisions in the coming weeks and the

decline in core inflation will define the timing and extent of

the central bank’s expected easing cycle, they said.

Globally, sentiment was subdued after Fed Governor

Christopher Waller said any slowing in pace of monetary policy

tightening should not be construed as “softening” in the Fed’s

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fight against inflation, tempering expectations of a smaller

hike next month.

But Wall Street banks are raising their outlook for emerging

markets’ hard-currency bonds on the basis a slowdown in U.S.

rate hikes could provide some relief for the asset class.

The dollar rose, weighing on risk appetite.

Mexico’s peso was flat after marking its fourth

straight week of gains on Friday.

Tens of thousands took to the streets in Mexico on Sunday to

protest President Andres Manuel Lopez Obrador’s plan to overhaul

the country’s electoral commission INE that they fear would

concentrate power in the hands of the government.

Chile’s peso fell 1.5%, retreating from nine-week

highs. While copper prices rose, COVID-19 cases grew in China,

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raising the possibility curbs that were eased last week in the

world’s biggest commodity consumer could be reimposed.

Elsewhere, South Africa’s rand slipped 0.5% after

jumping about 6% over the last four weeks, with eyes on a review

of the country’s sovereign credit rating from S&P Global and

Moody’s on Friday.

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 939.21 0.37

MSCI LatAm 2228.38 -1.13

Brazil Bovespa 112273.90 0.02

Mexico IPC 51966.40 0.01

Chile IPSA 5319.79 -0.58

Argentina MerVal 150997.03 0.388

Colombia COLCAP 1266.56 -0.92

Currencies Latest Daily %

change

Brazil real 5.3435 -0.30

Mexico peso 19.4880 0.04

Chile peso 904.4 -1.22

Colombia peso 4804.5 -0.07

Peru sol 3.8598 -0.44

Argentina peso 161.7500 -0.62

(interbank)

(Reporting by Susan Mathew in Bengaluru; editing by Barbara

Lewis)