EMERGING MARKETS-Latam FX slides ahead of U.S. Fed decision, unrest in Peru weighs
By Susan Mathew, Dec 14 (Reuters) – Latin American currencies underperformed emerging markets on Wednesday as investors braced for the US Federal Reserve’s interest rate decision, while the Brazilian real fell by two-fold on contracting economic activity. Weekly low slipped. The Brazilian real slipped 0.7% after data showed economic activity contracted in October as aggressive rate hikes to fight inflation weighed on growth. Incoming finance minister Fernando Haddad has promised to delay the timetable for new fiscal rules seen as crucial to putting public finances in order, but has not committed any dates. President-elect Luiz Inacio Lula da Silva, meanwhile, appointed Labor Party (PT) veteran Aloizio Mercadante to head the development bank BNDES. “The appointment of Mercadante to BNDES raises concerns that past subsidized lending policies could be resumed,” Citigroup strategists said in a statement. Peru’s sol fell 0.1%, breaking a four-day winning streak. The Supreme Court is considering prosecutors’ request for a preventive detention of up to 18 months for former President Pedro Castillo after he was charged with rebellion and conspiracy. Castillo’s arrest sparked protests in rural mining areas and claimed at least six lives. “The unrest is already causing economic damage, and the fallout will be even greater if the protests impact mining activity,” said Kimberley Sperrfechter, EM economist at Capital Economics. Peru is the second largest copper producer in the world. Peru’s new government is considering economic stimulus measures for protest-hit regions but will stick to “non-negotiable” budget deficit targets, the economy minister said. If the government eases its purse strings, it could squeeze Peru’s public finances, while ongoing protests could lead to shortages, forcing the central bank to remain hawkish as inflation is likely to pick up, she said. Sentiment in general was cautious as investors anticipated a likely 50 basis point rate hike from the US Federal Reserve and forecasts for inflation and economic growth. The Fed has hiked rates by 375 basis points so far in one of its most aggressive monetary tightening cycles in recent memory, as the war between Russia and Ukraine exacerbated a pandemic-induced rise in inflation and risked a recession. Risky emerging market assets have taken a hit, but investors expect emerging markets to hold their own against developed markets over the next year, with an HSBC survey forecasting a “significant improvement” in investor sentiment, led by Latin America. Major Latin American equity indices and currencies: Equity Indices Latest Daily % Change MSCI Emerging Markets 972.82 0.78 MSCI LatAm 2035.32 -2.53 Brazil Bovespa 101916.13 -1.57 Mexico IPC 50249.15 -0.17 Chile IPSA 5202.66 -0.46 Argentina MerVal 164793.72 -0.4220 Colombia COLCAP -0.4222 Currencies COLCAP Latest 1 Day % Change Brazilian Real 5.3472 -0.71 Mexico Peso 19.6858 -0.89 Chilean Peso 859.9 -0.41 Colombian peso 4772.27 -0.22 Peru sol 3.8298 -0.70 Argentine peso 172.1300 -0.19 (Interbank) (Reported by Susan Mathew in Bengaluru; Edited by Arun koyur)
