Latam FX dip on risk aversion; Israel bonds drop, default insurance spikes
Brazil's industrial output up 0.1% in August after July drop
Approval of Brazil's Lula slips ahead of local elections
Argentina budget cuts spark protests at universities
Polish cenbank leaves rates unchanged as inflation remains high
By Ankika Biswas
Oct 2 (Reuters) -Most Latin American currencies fell on Wednesday, as worsening Middle East tensions continued to dent investors' risk appetite and boosted the safe-haven dollar, while Israel's bonds slid and its default insurance costs spiked.
Israel's international bonds fell more than 2 cents and the country's default insurance costs rose to almost 12-year highs, after another ratings downgrade and rising fears the Middle East conflict will spread further.
The 2054 bond suffered the most, down 2.5 cents in the dollar to bid at 92.64 cents, their lowest level since August, Tradeweb data showed. Five-year credit default swaps jumped 10 basis points to 160 bps, their highest since November 2012.
In latest developments, Israeli forces pushed into South Lebanon in a campaign against the Hezbollah armed group, a day after Iran fired missiles at Israel.
"Financial markets have reacted as one would expect to the heightened geopolitical tensions in the Middle East, with a bout of risk aversion sweeping through asset classes," said Matthew Ryan, head of market strategy at Ebury.
"The involvement of Iran in the conflict is a particularly troublesome development for markets, with investors rightly fearful that retaliation from Israel could disrupt global oil supplies."
With the dollar index =USD climbing to a near three-week high, Latam currencies such as Chile's peso CLP=, Peru's sol PEN= and Colombia's peso COP= weakened between 0.2% and 0.5%.
However, Mexico's peso MXN= rose for the third straight day, firming 0.8% against the dollar to a one-week high, also boosted by a 2% jump in crude oil prices.
A poll showed Mexico's peso will recoup some losses in the medium-term if the new government holds back from pressing more controversial changes like a judicial reform that has eroded market sentiment in recent months.
Claudia Sheinbaum was sworn in as Mexico's first female president on Tuesday.
Further, Mexican central bank deputy governor Jonathan Heath said in an interview that the nation's benchmark interest rate should stay at its current level for longer.
Brazil's real BRL= also strengthened 0.2%.
Data showed Brazil's industrial production grew in line with expectations in August, reversing some of the losses registered in the previous month despite high interest rates.
Ratings agency Moody's upgraded Brazil's long-term issuer and senior unsecured bond ratings to Ba1 from Ba2, leaving the economy just one step away from regaining investment grade.
Argentina's public universities will hold a massive demonstration on Wednesday, backed by unions and opposition parties, to protest against sharp public spending cuts implemented by President Javier Milei.
Elsewhere, Poland's central bank left interest rates unchanged, as expected, saying inflation should return to its target after the energy price shock fades.
HIGHLIGHTS:
** Brazil credit rating upgrade paves the way for reduced risk premium, officials say
** Ghana inflation rises in September as food prices surge
** Approval of Brazil's Lula slips ahead of mid-term local elections
Key Latin American stock indexes and currencies at 1500 GMT:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1187.79 | 1.3 |
MSCI LatAm .MILA00000PUS | 2273.56 | 1.78 |
Brazil Bovespa .BVSP | 134476.86 | 1.5 |
Mexico IPC .MXX | 52262.29 | -0.41 |
Chile IPSA .SPIPSA | 6438.64 | -0.16 |
Argentina Merval .MERV | 1728761.16 | NULL |
Colombia COLCAP .COLCAP | 1312.86 | 0.44 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.4235 | 0.24 |
Mexico peso MXN= | 19.4403 | 0.84 |
Chile peso CLP= | 908.48 | -0.52 |
Colombia peso COP= | 4217.68 | -0.19 |
Peru sol PEN= | 3.7198 | -0.41 |
Argentina peso (interbank) ARS=RASL | 970.5 | -0.05 |
Argentina peso (parallel) ARSB= | 1200 | 2.92 |
Reporting by Ankika Biswas in Bengaluru; Editing by Emelia Sithole-Matarise
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