EMERGING MARKETS-Latam markets retreat as geopolitical risks, stronger dollar weigh

By Reuters News

By Sudeshna Ghoshal and Ragini Mathur

- Most Latin American stocks and currencies retreated on Thursday, surrendering part of the previous session's gains as oil-price volatility driven by geopolitical uncertainty and a stronger dollar weighed on regional assets.

Oil prices swung as persistent geopolitical tensions offset pressure from rising crude output. President Donald Trump's comment that the US didn't need a deal with Iran added to uncertainty over the Middle East conflict, which has complicated the global monetary-policy outlook this year by lifting energy prices and inflation.

Latin America had initially been seen as a potential beneficiary because it could serve as an alternative crude supplier. But higher energy costs have also raised inflation concerns and clouded the region's economic outlook.

In Brazil, data showed consumer prices rose less than expected in the 12 months through October but remained above the central bank's target range, reinforcing policymakers' commitment to keeping interest rates high to curb persistent inflation.

Central bank Governor Gabriel Galipolo said on Wednesday that providing policy guidance had limited value in an uncertain economic environment, even as markets seek clearer signals on the future path of rates.

"What matters, to be honest, is whether the central bank remains consistent with its decisions, positions and communications," said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

"Less guidance could mean more volatility, but it does not necessarily mean less credibility."

The real was down 0.8% against the dollar, while equities .BVSP were also down 0.8%.

Shares in Banco do Brasil BBAS3.SA fell to their lowest level in more than three years after the state-run lender posted weaker-than-expected third-quarter results, halved its full-year profit forecast and cut its expected shareholder payout.

Elsewhere, Trump also threatened on Thursday to double tariffs on Mexico if it does not stop more than a thousand migrants heading north toward the US following last week's midterm elections.

Mexican assets nevertheless outperformed. The peso was down 0.1%. Mexican shares .MXX were muted after reaching a record high in the previous session.

Mexico's benchmark gained about 9% in October, while the broader Latin American equity index .MILA00000PUS shed around 8% over the same period amid uncertainty surrounding Brazil's fiscal outlook following President Luiz Inácio Lula da Silva's reelection.

The MSCI regional equities gauge fell 1.3%, while a parallel currencies index .MILA00000CUS lost 0.6%.

Developing-world assets were also pressured by the US dollar, which earlier reached its highest level in about 19 months after this week's strong inflation data prompted a hawkish repricing of the Federal Reserve's rate path.

"The Fed, fiscal credibility and the direction of monetary policy will be the top things to follow in Latam," Abadia said.

The Chilean peso fell 1.3%, while stocks .MMXIPSAGC were little changed. Copper prices, a key driver for Chile's economy, dropped to their lowest in more than three months on concerns about weak demand and dollar strength. MET/L

Argentina is due to release inflation data later in the day. Inflation is expected to have remained near 2% in October, according to a Reuters poll, supported by higher natural-gas tariffs following subsidy cuts.

The country's currency was up 0.1% on the day.


Key Latin American stock indexes and currencies:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1553.97

-1.41

MSCI LatAm .MILA00000PUS

2793.76

-1.28

Brazil Bovespa .BVSP

170773.81

-0.75

Mexico IPC .MXX

71909.06

-0.13

Colombia COLCAP .COLCAP

2450.38

-1.45

Currencies

Latest

Daily % change

Brazil real

5.6257

-0.77

Mexico peso

18.61

-0.13

Chile peso

994.64

-1.28

Colombia peso

3297.95

-0.54

Peru sol

3.4038

0.07

Argentina peso (interbank)

1,543.5

0.10

Argentina peso (parallel)

1,545.0

1.59

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