EMERGING MARKETS-LatAm stocks hit one-week low as oil jumps to five-month high
By Sudeshna Ghoshal, Johann M Cherian and Niket Nishant
Oct 22 (Reuters) - MSCI's index of Latin American stocks fell to its lowest in a week on Thursday as surging crude prices rekindled concerns over inflation and slowing growth.
The index .MILA00000PUS slid 1.84% to its weakest since October 15, while a parallel currencies gauge .MILA00000CUS dipped 0.3% versus the dollar.
Brent crude prices hit a five-month high after more Houthi attacks in Saudi Arabia stoked concerns over an escalation of the Middle East conflict and further disruptions to oil supplies.
The declines underscore how higher oil prices can sour risk sentiment across the globe. Initially viewed as a potential winner because of its capacity to serve as an alternative crude supplier, Latin America has also come under pressure because of inflationary fallout.
Mexico's peso slipped 0.17% and stocks .MXX lost 0.49% after data showed headline inflation rose more than expected in early October.
The currency is one of the worst performing in the region as investors unwound carry trades after they viewed minutes from the Bank of Mexico's latest meeting as moderately dovish. The central bank kept its benchmark interest rate unchanged at 6.50%.
On the other hand, traders are pricing in more rate hikes by the US Federal Reserve in the coming months.
"This prospective policy divergence implies a narrowing in the expected US-Mexico interest-rate differential. That is particularly important for MXN given the peso's traditional attractiveness as a carry currency," said Christian Lawrence, chief cross-asset strategist at Rabobank.
BRAZIL POLLS IN FOCUS
The bigger focus in the region was Brazil, with less than a week to go for the closely watched runoff between Senator Flavio Bolsonaro and President Luiz Inacio Lula da Silva, on Sunday.
Latest polls have shown the market-friendly Bolsonaro's lead over Lula narrowing, sparking volatility in local markets. A Datafolha survey is expected to be released after the stock market closes on Thursday.
The real fell 0.26% at 5.04 to the dollar, while the equity benchmark index .BVSP lost 1.05%.
"Following the rally after the first-round election, valuation is no longer attractive," said Hasnain Malik, managing director, geopolitical risk and emerging markets equity strategy at Tellimer Research.
Currencies of copper exporter Peru was flat, while the Chilean peso fell. A central bank poll showed that traders expected interest rates to stay unchanged for 12 months.
Peru rolled out a series of economic measures to fight a potential slowdown due to the impact of the El Niño weather phenomenon that investors fear will compound inflation risks.
Elsewhere in emerging markets, the lira was steady after Turkey's central bank delivered a widely expected 100-basis-point rate cut to 36%, ending a five-meeting pause during which policymakers monitored the inflation impact of the Iran conflict.
Key Latin American stock indexes and currencies:
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1575.31 | -2.48 |
MSCI LatAm .MILA00000PUS | 3294.04 | -1.84 |
Brazil Bovespa .BVSP | 204333.2 | -1.05 |
Mexico IPC .MXX | 69905.96 | -0.49 |
Chile IPSA .MMXIPSAGC | 10780.31 | -1.88 |
Colombia COLCAP .COLCAP | 2528.77 | -1.23 |
Currencies | Latest | Daily % change |
Brazil real | 5.0368 | -0.26 |
Mexico peso | 18.7015 | -0.17 |
Chile peso | 985.62 | -0.46 |
Colombia peso | 3173 | 0.52 |
Peru sol | 3.4336 | 0.03 |
Argentina peso (interbank) | 1,527 | -0.07 |
Argentina peso (parallel) | 1,545.0 | 1.28 |