LatAm stocks, FX fall as US rate hike bets weigh

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BRASILIA: Latin American stocks and currencies fell on Friday amid fresh concerns over Brazil’s presidential election outlook and mounting expectations of a US interest-rate hike after stronger-than-expected inflation data.

MSCI’s gauge of Latin American stocks dropped 1 percent and was on track for its steepest weekly loss in a month.

Brazilian Senator Flavio Bolsonaro, the leading right-wing challenger to President Luiz Inacio Lula da Silva in next month’s election, is under investigation for alleged corruption and money laundering linked to failed lender Banco Master, according to court documents unsealed on Friday.

The development weighed on Brazilian assets, after recent polls pointed to a close race between Bolsonaro and Lula. Markets view Bolsonaro as more business-friendly.

Brazil’s benchmark equity index fell 0.8 percent, though it remained on track for a fourth consecutive weekly gain. The Brazilian real edged 0.3 percent lower and was little changed for the week.

Separately, Brazil’s annual inflation slowed more than expected in August as consumer prices posted their steepest monthly decline in four years, strengthening the case for the central bank to deliver another interest rate cut next week.

“The BRL is increasingly being driven by politics rather than monetary policy,” said UBS analysts, in a note.

“While this shift in sentiment remains supportive, it has also compressed Brazil’s risk premium, leaving the real more exposed to election-related headlines and polling volatility.”

Closely watched US CPI data showed inflation accelerated in August as the cost of gasoline rebounded after two straight monthly declines. The data bolstered expectations that the Federal Reserve could raise interest rates next week, pressuring emerging-market assets.

MSCI’s LatAm FX index was trading 0.4 percent lower and was little changed for the week.

Oil prices eased on Friday but remained north of USD100 a barrel as the latest attacks along Middle East shipping routes stoked concerns about prolonged supply disruptions.

While net oil exporting countries in the region have benefited from higher crude prices, fears persisted that prolonged inflation could complicate central-bank policy globally.

Mexico and the US are working to secure a bilateral trade deal before the US midterm elections in less than eight weeks, according to six sources familiar with the talks. The effort has gained urgency following the collapse of Canada’s negotiations with Washington.

The Mexican stocks benchmark index dropped 0.3 percent. The peso added 0.1 percent.

Peru’s central bank held its benchmark interest rate at 4.25 percent on Thursday, extending its pause for a 12th straight meeting, in line with market expectations.

The sol fell 0.1 percent, while stocks in Lima edged 0.2 percent lower.

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