Latam FX drop as Middle East tensions spark safe-haven demand
US has indications Iran preparing to launch ballistic missile attack on Israel
Bank of Mexico may consider larger rate cuts, says bank governor
Chile's economic activity jumps 2.3% year-on-year in Aug
Sheinbaum to be sworn in as first woman president
Latam stocks down 0.3%, FX off 0.5%
By Ankika Biswas
Oct 1 (Reuters) -Most Latin American currencies dropped on Tuesday as an escalation in Middle East tensions steered investors away from risky assets to safe-haven ones, while bets of a slimmer-than-expected U.S. interest-rate cut also weighed on sentiment.
Safe-haven assets such as gold, the Swiss franc CHF= and the Japanese yen JPY= rose after a senior White House official said U.S. has indications that Iran is preparing to imminently launch a ballistic missile attack against Israel.
"The initial market reaction to the news has been pretty much exactly as one would have expected, with a knee-jerk risk-off vibe sweeping across the board," said Michael Brown, senior research strategist at Pepperstone, London.
"Markets are likely to display an incredibly high sensitivity to incoming geopolitical news flow in the coming hours though, if recent reports are to be believed..."
This comes on top of a strong U.S. dollar =USD, propped by easing bets of a 50-basis-point interest rate cut after Federal Reserve Chair Jerome Powell's overnight comments, that had pressured most emerging market asset classes after a strong monthly performance.
The MSCI Latam currencies index .MILA00000CUS fell 0.5%, after logging its biggest monthly gain since June 2023, while the stocks gauge .MILA00000PUS slipped 0.3%.
A spike in metal prices on the back of China's series of stimulus measures and the Federal Reserve's recent interest-rate cut were the major drivers of emerging market stocks and currencies' upbeat performance last month.
The drop in the resource-rich Latin American currencies comes even as commodity prices were up on the day, with oil prices jumping around 3% on the worsening geopolitical situation.
Among the major currencies, Mexico's peso MXN= and Brazil's real BRL= weakened 0.5% and 0.3%, respectively against the dollar.
Further, Claudia Sheinbaum will make history during the day when she is sworn in as Mexico's first woman president. Political watchers and analysts predict she will urgently look to calm investors since the passing of a controversial judicial reform pushed by the outgoing President.
Also, the Bank of Mexico may consider larger interest rate cuts going forward as inflation cools, bank governor Victoria Rodriguez told Reuters. This follows last week's 25-basis-point rate cut.
Banxico's next monetary policy decisions are on Nov. 14 and Dec. 19.
HIGHLIGHTS:
** Zimbabwe bankers wary of more shocks after sharp ZiG devaluation
** Romania aims to sell domestic debt worth 6.4 bln lei in October
** Pakistan's annual consumer price inflation slows to 6.9% in September
Key Latin American stock indexes and currencies at 1430 GMT:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1169.96 | -0.08 |
MSCI LatAm .MILA00000PUS | 2231.23 | -0.28 |
Brazil Bovespa .BVSP | 132398.17 | 0.44 |
Mexico IPC .MXX | 52477.3 | -0.57 |
Chile IPSA .SPIPSA | 6458.48 | -0.49 |
Argentina Merval .MERV | 1697400.66 | NULL |
Colombia COLCAP .COLCAP | 1307.45 | -0.01 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.4659 | -0.32 |
Mexico peso MXN= | 19.767 | -0.45 |
Chile peso CLP= | 900.43 | -0.2 |
Colombia peso COP= | 4226.05 | -0.48 |
Peru sol PEN= | 3.7098 | -0.56 |
Argentina peso (interbank) ARS=RASL | 970 | -0.103092784 |
Argentina peso (parallel) ARSB= | 1215 | 2.469135802 |
Reporting by Ankika Biswas in Bengaluru, additonal reporting by Saqib Ahmed in New York
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