Brazilian markets rattle as proposed fiscal steps miss the mark
Mexican peso recoups some losses
Brazilian real briefly hits six per dollar
Latam FX down 1.3%, stocks slip 1.6%
Updates with mid-session trading
By Shashwat Chauhan and Pranav Kashyap
Nov 28 (Reuters) - Brazil's real plunged to a historic low on Thursday, while its benchmark bond yield surged, as a wave of selling swept through the market following the government's unveiling of a contentious income tax reform package.
The real BRL= tumbled 0.8% to 5.9842 per dollar. It brieflyhit the level of 6.0 after Finance Minister Fernando Haddad's address on Wednesday.
Brazilian equities .BVSP also extended losses, with the index falling more than 1% to its lowest level in more than three months.
The yield on Brazil's 10-year benchmark bond BR10YT=RR rose to over a one-year high of 13.49%.
This drop in Brazilian assets comes after Brazil, following weeks of delay, revealed plans on Wednesday to expand income tax exemptions for lower-income earners while hiking taxes on higher earners. The proposal also included intentions to curtail public spending in the coming years.
The announcement triggered anexodus of investors from the currency, which has now slumped approximately 2% in just 24 hours.
The uncertainty surrounding these fiscal measures injected fresh volatility into Brazilian markets, as concerns mount that the government may fall short of meeting the stringent budget rules established last year to curb the rise of public debt.
"The measures failed to live up to expectations and reinforce the idea that political commitment to stabilizing the public finances is lacking, said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.
"Brazil has too much domestic currency government debt, stemming from too many tax exemptions and too much public spending," said Hasnain Malik, head of equity research at Tellimer Research.
On Thursday, Finance Minister Haddad sought to soothe market jitters by stating that the reforms will be fiscally neutral and analyzed by Congress in time to take effect in 2026.
Mexico's peso MXN= recouped some of this week's losses to rise 0.7%. Mexico's President Claudia Sheinbaum said she and U.S. President-elect Donald Trump had afriendly call and looks to ease tariff tensions.
It had been jolted this week by U.S. President-elect Donald Trump saying he would impose a 25% tariff on imports from Canada and Mexico.
The Bank of Mexico's governing board expects that current inflation dynamics mayallow further adjustments to the benchmark interest rate, minutes from the bank's November monetary policy decision showed on Thursday.
MSCI's index for Latin American currencies .MILA00000CUS was down 1.3%,its lowest in more than three months.
The stock index .MILA00000PUS slid 1.6%,touching its lowest level in more than two years.
EM assets have experienced a torrid November as investors mull the implications of Trump's policies on trade, tariffs and immigration, with the possibility of a global trade war.
Chile's peso CLP=, Brazil's real and the Mexican peso are amongst the worst performing EM currencies so far this year. Chile's peso is down about 11% against the dollar, while the Brazilian and Mexican currencies are down over 20%.
Markets in the United States were shut for the Thanksgiving holiday.
HIGHLIGHTS
** Producer prices in Brazil rise 0.94% in October
Key Latin American stock indexes and currencies:
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1079.9 | -0.71 |
MSCI LatAm .MILA00000PUS | 2011.37 | -1.58 |
Brazil Bovespa .BVSP | 125887.15 | -1.4 |
Mexico IPC .MXX | 50025.45 | 0.48 |
Chile IPSA .SPIPSA | 6587.13 | 0.12 |
Argentina MerVal .MERV | 2221631.28 | 0.74 |
Colombia COLCAP .COLCAP | 1397.65 | 0.01 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.9842 | -0.78 |
Mexico peso MXN= | 20.4301 | 0.73 |
Chile peso CLP= | 977.03 | 0.01 |
Colombia peso COP= | 4414.2 | -0.7 |
Peru sol PEN= | 3.744 | 0.11 |
Argentina peso (interbank) ARS=RASL | 1,009.0 | -0.05 |
Argentina peso (parallel) ARSB= | 1,100.0 | 2.22 |
Reporting by Shashwat Chauhan and Pranav Kashyap in Bengaluru; Editing by Kevin Liffey and Diane Craft
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