Latam FX drop ahead of all-important Fed rate verdict
Mexico's judicial reform stokes investor fears; analysts bullish
Brazil policy decision due on Wednesday
Latam FX flat, stocks creep 0.1% higher
By Ankika Biswas
Sept 17 (Reuters) -Most Latin American currencies fell against the dollar on Tuesday, as investors grew cautious at the start of a two-day Federal Reserve monetary policy meeting that would be crucial in shaping the ongoing global risk appetite.
The MSCI index for Latam currencies .MILA00000CUS was flat as of 1441 GMT, after a three-day winning streak, while the stocks gauge .MILA00000PUS edged 0.1% higher.
Fresh data showed U.S. retail sales unexpectedly rose in August, suggesting that the world's largest economy remained on a solid footing through much of third quarter.
With market bets of a 50-basis-point U.S. rate cut picking up steam, there seems to be a discord in expectations from investors and economists on the quantum of a cut on Wednesday. Economists, who foresee a 25-bps cut, argue that the economy is not in distress to warrant a 50-bps one.
The Federal Reserve starts its two-day monetary policy meeting on Tuesday.
Mexico's peso MXN= was among the worst hit Latam currencies, down 0.5% and falling for the second straight day, while the stock index .MXX rose 1% to top regional peers.
The country's judicial reform has triggered investor concerns about uncertainty over the rule of law and the strength of the government's institutions, yet with the reform now priced in, some analysts argue there may be buying opportunities forming.
Mexican financial markets have been on a turbulent ride this year since the June elections. The Mexican peso MXN=, among the best-performing EM currencies, is on track for its largest yearly decline since 2016 and the benchmark stock index .MXX is set for its steepest yearly fall since 2018.
"We expect potential constitutional changes in the coming months. One-third of our participants expect new administration policies in Mexico to have a negative impact on asset prices," Bank of America analysts noted.
They also highlighted that participants in a "Latam Fund Manager Survey" are more constructive about Brazil than Mexico, and expect Chile to outperform among the Andean nations.
Among others, Chile's peso CLP= and Peru's sol PEN= were down 0.4% and 0.5% against the greenback, respectively, hurt by weak copper prices.
Colombia's peso COP= was also down 0.5%, with Citi analysts flagging that the Congress postponed Colombia's budget discussions to September 25.
However, Brazil's real BRL= bucked the weak trend in Latam FX with a modest rise of 0.1%.
Data showed Brazil's inflation as measured by the IGP-10 price index rose 0.18% in September, after a 0.72% gain in August.
This comes ahead of Brazil's policy decision on Wednesday, where interest rates are expected to rise by 25 basis points. This would mark the start of a short tightening campaign to quash persistent inflationary trends, moving the opposite way to its peers.
A Reuters poll showed Argentina's economy likely shrank 1.4% in second quarter year-on-year, the fifth such decline as a recession deepens under a tough austerity drive by libertarian President Javier Milei. The data is due on Wednesday.
Key Latin American stock indexes and currencies at 1441 GMT:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1091.34 | 0.49 |
MSCI LatAm .MILA00000PUS | 2266.55 | 0.20 |
Brazil Bovespa .BVSP | 134534.16 | -0.43 |
Mexico IPC .MXX | 52554.1 | 1.03 |
Chile IPSA .SPIPSA | 6334.55 | -0.19 |
Argentina Merval .MERV | 1798742.55 | -0.779 |
Colombia COLCAP .COLCAP | 1317.75 | -0.02 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.5053 | 0.09 |
Mexico peso MXN= | 19.2957 | -0.46 |
Chile peso CLP= | 926.4 | -0.54 |
Colombia peso COP= | 4255.3 | -0.53 |
Peru sol PEN= | 3.7813 | -0.44 |
Argentina peso (interbank) ARS=RASL | 961 | 0 |
Argentina peso (parallel) ARSB= | 1255 | 0.796812749 |
Reporting by Ankika Biswas in Bengaluru; editing by David Evans
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