Real leads Latam FX lower on fiscal policy, interest rates caution
Mexico gross fixed investment rises in April
Brazil's Haddad rules out currency transaction tax
Latam stocks off 0.8%, FX down 0.5%
Updated at 3:10 p.m. ET/1710 GMT
By Johann M Cherian and Shristi Achar A
July 2 (Reuters) -Concern around fiscal stability and interest rates dominated markets across Latin America on Tuesday, with Brazil's real dropping to over two-year lows.
MSCI's index tracking Latin American currencies .MILA00000CUS slid 0.5% against the dollar as markets focused on comments by Federal Reserve Chair JeromePowell that cautioned against an imminent reduction of U.S. interest rates.
As the most influential central bank, the Fed's policy trajectory often sets the tone for monetary policy for most central banks across the world.
Brazil's real BRL= slipped 0.1%,hovering at 5.66 to the dollar, levels last seen in early 2022, as markets assessed comments by Finance Minister Fernando Haddad that there is no possibility the government would apply a financial transactions tax (IOF) on currency exchanges.
The real has lost over 14% year to date in value and is the worst performer among regional economies, as market participants weigh local fiscal policies and the future of monetary policy as highlighted by local central bank chief Roberto Campos Neto at a European Central Bank Forum in Portugal.
"As fiscal policy has turned looser under Lula, it has certainly raised the risks of higher inflation... it looks like policy rates are probably going to be on hold for the foreseeable future as some of those fiscal risks ultimately start to materialize," Brendan McKenna, FX strategist at Wells Fargo told theReuters Global Markets Forum.
Meanwhile, President Luiz Inacio Lula da Silva said he was worried about the weakness of Brazil's currency and that something needed to be done to tackle what he called "speculation."
Separately, data showed consumer prices in Sao Paulo, Brazil's most populous city, rose 0.26% in June, from an increase of 0.09% in May. The data is an early indicator of inflation in the broader economy.
On the flip side, copper producer Peru's sol PEN= added 0.5%as prices of the red metal shined. MET/L
Mexico's peso MXN= advanced 0.4%, slightly off the one-week high hit earlier in the session.
On the equities front, MSCI's index tracking regional bourses .MILA00000PUS slid 0.8%, though heavy-weight Brazil's stocks .BVSP edged up 0.2%.
Mexico's main stock index MXN= shed nearly 2%, with market participants parsing data showing the country'sgross fixed investment increased 1.2% on a monthly basis in April, up from 0.9% in the month before.
Key Latin American stock indexes and currencies:
Latin American market prices from Reuters | ||
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1080.21 | -0.66 |
MSCI LatAm .MILA00000PUS | 2160.84 | -0.86 |
Brazil Bovespa .BVSP | 124951.38 | 0.19 |
Mexico IPC .MXX | 51841.84 | -1.97 |
Chile IPSA .SPIPSA | 6376.47 | -0.48 |
Argentina MerVal .MERV | 1636391.13 | 2.612 |
Colombia COLCAP .COLCAP | 1383.29 | 0.17 |
Currencies | Latest | Daily % change |
Brazil real BRBY | 5.6616 | -0.15 |
Mexico peso MXN=D2 | 18.2687 | 0.37 |
Chile peso CLP=CL | 948.2 | -0.18 |
Colombia peso COP= | 4121.5 | 0.28 |
Peru sol PEN=PE | 3.8043 | 0.55 |
Argentina peso (interbank) ARS=RASL | 914.0000 | 0.00 |
Reporting by Johann M Cherian and Shristi Achar A in Bengaluru, Additional reporting by Mehnaz Yasmin; Editing by Philippa Fletcher and Andrea Ricci
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