EMERGING MARKETS-LatAm assets rise as soft US inflation data dims October Fed hike odds
By Utkarsh Hathi
Sept 30 (Reuters) - Most Latin American currencies strengthened against a weaker dollar on Wednesday, while stocks also advanced as lower-than-expected US inflation eased fears that the Federal Reserve could raise interest rates next month.
The US Personal Consumption Expenditures Price index (PCE), the Fed's preferred inflation gauge, rose 0.3% in August and 3.4% over 12 months, which was lower than the 3.7% expected by economists in a Reuters poll.
Separate data showed the US economy grew at a faster-than-expected pace in the second quarter.
"Today's data delivers a goldilocks combination. The net effect is broadly supportive of risk assets and materially reduces the probability of an October rate hike, while keeping a Q4 hike on the table," said Chris Osmond, chief investment officer for Fifth Third Wealth Advisors.
Traders are now pricing in a roughly 35% chance of a rate hike in October, down from about 45% before the data, according to CME Group's FedWatch tool.
The US dollar index slipped 0.17%, though it was hovering near a two-month high hit recently.
MSCI's index tracking Latin American equities .MILA00000PUS advanced 1%, while its currency equivalent .MILA00000CUS edged 0.6% higher, snapping a six-day losing streak.
The currency benchmark is on course for a seventh straight quarter of gains, the longest such streak since at least April 2009, when LSEG data begins.
BRAZIL ELECTION IN FOCUS
In Brazil, investors remain cautious ahead of the first round of voting in the presidential election taking place on October 4, limiting the scope for a broader rally.
"The election is going to curtail anything else in the near term. Once we get through the elections, from there we could set some kind of forecast for the equity market in Brazil as well as monetary policy," said Michael Dehal, senior portfolio manager, Dehal Investment Partners at Raymond James.
The real strengthened 0.34% against the greenback, while its equities .BVSP gained 1.1%.
Brazil's gross debt rose to 82.9% of its GDP in August, central bank data showed on Wednesday.
Meanwhile, China's commerce ministry said on Wednesday that it will start collecting an additional 55% tariff on Brazil's beef shipments from October 1, after the South American country reached its annual quota of 1.1 million metric tons. Brazil is the world's biggest beef exporter.
Elsewhere, the Mexican peso rose 0.32%, though it remained on track for its worst month since August 2024, down 5.9%.
Investors are also looking ahead to the Colombian central bank's interest rate announcement later in the day, with the bank widely expected to keep rates unchanged despite increasing inflation risks.
Colombia's peso .COP= rose the most among its peers, up 0.5%, while the benchmark stock index .COLCAP slipped 0.22%.
In Chile, the unemployment rate hit its highest level in more than five years in the quarter through August, statistics agency INE said on Wednesday.
Joblessness has now returned to levels last seen during the COVID-19 pandemic, and could increase the pressure on the Chilean peso, which is on track for its steepest quarterly fall in seven quarters.
The peso edged 0.12% lower, while stocks .MICL00000PUS gained 0.31%, tracking higher copper prices. Copper output in the world's largest producer of the base metal fell 12.8% year-on-year in August.
Key Latin American stock indexes and currencies at 14:40 GMT
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1704.42 | 0.16 |
MSCI LatAm .MILA00000PUS | 3040.88 | 0.98 |
Brazil Bovespa .BVSP | 185748.61 | 1.05 |
Mexico IPC .MXX | 64963.3 | -0.23 |
Argentina MerVal .MERV | 2788248.93 | 0.2 |
Colombia COLCAP .COLCAP | 2553.68 | -0.2 |
Chile IPSA .SPIPSA | NOT AVAILABLE | NOT AVAILABLE |
Currencies | Latest | Daily % change |
Brazil real | 5.1837 | 0.34 |
Mexico peso | 17.983 | 0.32 |
Chile peso | 973.23 | -0.12 |
Colombia peso | 3305.41 | 0.54 |
Peru sol | 3.4297 | 0.26 |
Argentina peso (interbank) | 1,521.5 | 0.20 |
Argentina peso (parallel) | 1,540.0 | 1.28 |