Brazil's real plummets to 2020 low on fiscal package worries
Brazil's fiscal package to be announced Thursday morning - Labor Minister
Mexican peso pinned at lowest level in more than two years
Latam FX down 1.1%, stocks off 1.9%
Updates with mid-session trading
By Pranav Kashyap and Shashwat Chauhan
Nov 27 (Reuters) - The Brazilian real dropped to a nearly 4-1/2 year low on Wednesday on expectations that the government will announce income tax exemptions that would reduce revenue.
Brazil's real BRL= almost hit the May 2020 record low of 5.97 against the greenback, before trading down 1.76% at 5.91 per dollar.
The local benchmark stock index, Bovespa .BVSP, slid 1.36%.
Finance Minister Fernando Haddad is expected to announce tax cuts in a televised address at 8:30 p.m. (2330 GMT) local time on Wednesday.
A source familiar with the matter said on condition of anonymity that Haddad is expected to announce an income tax exemption for individuals earning up to 5,000 reais ($850) per month, up from the current threshold of 2,824 reais.
Labor Minister Luiz Marinho said the full package of fiscal measures is expected to be unveiled on Thursday morning.
"Some market participants see this as a nonsense approach. It's going to be extremely challenging to see a better fiscal picture if that they implement those tax cuts," said Andres Abadia, chief Latam economist at Pantheon Macroeconomics.
Mexico'speso MXN= pared earlier losses to trade barely changed at 20.63per dollar. The Bank of Mexicoslightly raised its 2024 economic growth forecast while holding its forecast for 2025.
President Claudia Sheinbaum saidMexico would retaliate if U.S. President-elect Donald Trump followed through with his proposed 25% across-the-board tariff that her government warned could kill 400,000 U.S. jobs.
"With the Trump administration pledging to implement tariffs, the global growth narrative has also been negatively impacted. Trade wars are now a concern in the minds of investors," said Juan Perez, director of trading at Monex USA.
In Colombia, two government sources said it will cut the budget for this year by 28.4 trillion pesos ($6.44 billion) due tolower-than-expected tax revenue.
The peso COP= reversed early losses and was up 0.3%in light trading.
Latin American assets have run into turbulence in November, with the currencies of Mexico and Brazil among the worst performers in emerging markets as investors mull the implications of Trump's policies on trade, tariffs and immigration.
Continued repricing of the Federal Reserve's interest rate path has also helped the dollar globally, weakening EM currencies.
Meanwhile, U.S. consumer spending increased solidly in October, suggesting that the economy maintained its strong pace of growth early in the fourth quarter, but progress lowering inflation appears to have stalled in the past months.
MSCI's index for Latin American currencies .MILA00000CUS fell1.1%, while a gauge for stocks .MILA00000PUS lost 1.9%.
JPMorgan upgraded Mexican equities to "overweight" from "neutral" on the back of strong U.S. growth but cut Brazilian equities, citing slower growth in China amid emerging pressures from Trump's tariff policy.
Credit rating agency Moody's upgraded El Salvador's credit rating to 'B3', sayingthe Central American nation's credit profile benefited from recent a liability management operation.
Key Latin American stock indexes and currencies:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1088.51 | 0.15 |
MSCI LatAm .MILA00000PUS | 2035.56 | -1.9 |
Brazil Bovespa .BVSP | 128161.7 | -1.36 |
Mexico IPC .MXX | 49723.09 | 0 |
Chile IPSA .SPIPSA | 6578.85 | 0.31 |
Argentina MerVal .MERV | 2199071.3 | -2.36 |
Colombia COLCAP .COLCAP | 1397.61 | 0.46 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.912 | -1.76 |
Mexico peso MXN= | 20.6353 | -0.05 |
Chile peso CLP= | 977.1 | -0.04 |
Colombia peso COP= | 4385 | 0.31 |
Peru sol PEN= | 3.7482 | 0.39 |
Argentina peso (interbank) ARS=RASL | 1,007.5 | 0.00 |
Argentina peso (parallel) ARSB= | 1,105.0 | 2.64 |
Reporting by Shashwat Chauhan in Bengaluru; Editing by Angus MacSwan and Richard Chang
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