Latam assets climb on Fed rate cut optimism; Israel shekel, shares tank
Foreigners pour $31 billion into EM portfolios in Aug, IIF says
Mexico's sweeping judicial overhaul formally takes effect
Peru economy expands for fourth straight month in July
Milei pledges to protect fiscal balance in budget speech
FX up 0.6%, stocks add 0.8%
By Ankika Biswas
Sept 16 (Reuters) -Most Latin American stocks and currencies rose in early trading on Monday, as emerging market assets rode the prospects of an outsized Federal Reserve interest rate cut, while Israel's shekel and shares slid on talk that Netanyahu may dismiss his defence minister.
The MSCI index for Latam currencies .MILA00000CUS was at a near one-month high, with the broader EM currencies gauge .MIEM00000CUS scaling a lifetime high on the day. The regional stocks index .MILA00000PUS also climbed 0.8%.
Both Latam indexes logged weekly gains on Friday, due to strong expectations of a September U.S. rate cut. With markets gearing up for an all-but-certain Fed cut, the question remains the size of such a move. LSEG data shows market bets are largely inclined toward a 50-basis-point cut on Wednesday.
Lower U.S. rates could give EM central banks more room for manoeuvre to ease themselves and support domestic growth, barring the volatility and uncertainty around November's U.S. presidential election. Latin American countries are some of the major EMs that have already started a rate-cut cycle before the Fed.
"Whether it will be a 25-bps or 50-bps cut in the Fed funds rate, we really need to know more about where the rate will settle in a year or so from now," said Steven Major, global head of fixed income research at HSBC.
"By September 2025 the Fed funds futures imply almost 250 bps of rate cuts and the maximum for this cycle is just a tad more, according to the January 2026 Fed funds futures."
Brazil's real BRL= was the top Latam currency gainer, strengthening 1% against the dollar to a near three-week high, with investors also awaiting the country's inflation figures due on Tuesday.
On the flip side, the Mexican peso MXN=D2 slipped 0.5%, set to snap a three-day winning streak, after having touched its highest level since Aug. 26 in early trade. The local equity market was closed on account of Independence Day.
Mexico's judicial reform overhauling the country's courts, which will allow voters to elect judges, officially took effect on Sunday, marking a major legislative victory in President Andres Manuel Lopez Obrador's final weeks in office.
Among other Latam currencies, Chile's peso CLP=CL rose 0.5% against the dollar, boosted by strong copper prices. Colombian peso COP= rose 0.2%, due to a jump of around 2% in oil prices.
Peru's sol PEN= slipped 0.1%. Data showed Peru's economy expanded for the fourth month in a row in July fueled by all sectors except agriculture, continuing the country's recovery following a recession last year.
In Argentina, President Javier Milei said during a presentation to Congress on Sunday on the 2025 budget that he would defend his government's commitment to maintaining fiscal balance and veto all bills that threaten it.
Meanwhile, data from a banking trade group showed foreign investors ploughed a net $30.9 billion into EM stocks and debt portfolios in August.
Elsewhere, talk that Israeli Prime Minister Benjamin Netanyahu was considering firing Defence Minister Yoav Gallant, something denied by Netanyahu, sent Israeli financial markets lower, dealers highlighted.
The shekel ILS= weakened nearly 1% against the dollar, while the main stock index .TA125 fell 1.5% to a near one-month low.
Key Latin American stock indexes and currencies at 1400 GMT:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1087.13 | 0.45 |
MSCI LatAm .MILA00000PUS | 2265.8 | 0.76 |
Brazil Bovespa .BVSP | 135665.86 | 0.58 |
Mexico IPC .MXX | 52016.85 | 0.03 |
Chile IPSA .SPIPSA | 6343.58 | -0.12 |
Argentina Merval .MERV | 1817734.05 | 0.0 |
Colombia COLCAP .COLCAP | 1316.12 | 0.34 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.508 | 1.01 |
Mexico peso MXN= | 19.2768 | -0.47 |
Chile peso CLP= | 921.3 | 0.51 |
Colombia peso COP= | 4177.46 | 0.17 |
Peru sol PEN= | 3.776 | -0.11 |
Argentina peso (interbank) ARS=RASL | 961 | -0.156087409 |
Argentina peso (parallel) ARSB= | 1245 | 2.81124498 |
Reporting by Ankika Biswas in Bengaluru
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