Hot U.S. CPI data sends Latam stocks, FX crashing

Author of the article: Reuters Anisha Sircar and Amruta Khandekar Latin American currencies plunged on Tuesday as the dollar surged after data showed monthly U.S Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc. By clicking on the sign up button you…
Hot U.S. CPI data sends Latam stocks, FX crashing

Author of the article:

Reuters

Anisha Sircar and Amruta Khandekar

Latin American currencies plunged on

Tuesday as the dollar surged after data showed monthly U.S

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consumer prices unexpectedly rose in August, fanning fears of

aggressive rate hikes in the world’s largest economy.

The U.S. consumer price index gained 0.1% last month after

being unchanged in July, the Labor Department said. Economists

polled by Reuters had forecast a dip of 0.1%.

All major currencies were in the red, with Colombia’s peso

, Mexico’s peso and Chile’s peso down more

than 1% each.

“We’re at a point where inflation (in Latam) is starting to

cool faster than U.S. inflation and that differential creates

risks for those currencies,” said Edward Al-Hussainy, senior

analyst at Columbia Threadneedle.

“Many Latam central banks are coming to the conclusion that

they’ve broken inflation domestically, and therefore, their

hiking cycles are likely to come to an end before the end of

this year,” added Al-Hussainy.

“On the other hand, clearly the Federal Reserve hiking cycle

isn’t anywhere near done, so it creates a window for the dollar

to strengthen again.”

The Fed is seen delivering a third straight 75-basis point

rate hike next week, futures contracts tied to the Fed’s policy

rate showed.

“When (the Fed) starts to telegraph the rate increases are

near the end, you’ll see (Latam) markets snap back into gear,”

said Robert Lutts, chief investment officer at Cabot Wealth

Management.

The dollar index pared earlier losses to jump 1.04%

following the CPI data. Broader EM currencies

reversed gains from earlier in the day to eye their worst day so

far this month.

Brazil’s real led Latam losses, plunging

1.5%, looking past upbeat data that showed services activity in

the country rose 1.1% in July from June, above the median 0.5%

increase forecast in a Reuters poll.

Regional stocks and currencies

were set to snap a three-day winning streak as worries

re-emerged over cost pressures and economic growth amid rising

fears of a recession.

On Monday, Chile’s government launched a plan to promote

investment into 2023 that includes an array of tax breaks for

the world’s largest copper producer at a time when its economy

is faltering.

Elsewhere, Colombia’s government wants to expand its budget

for 2023 by 14.3 trillion pesos ($3.28 billion), a finance

ministry spokesperson said.

Ecopetrol inched 0.1% higher. The Colombian

state-run oil company asked the oil regulator to suspend

contracts for two fracking pilot projects for 90 days, the firm

and two sources told Reuters.

Meanwhile, Argentina’s inflation rate, heading towards 100%

this year, likely eased in August versus a 20-year peak the

month before, analysts polled by Reuters said.

Key Latin American stock indexes and currencies at 1441 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 978.59 -0.05

MSCI LatAm 2207.06 -1.53

Brazil Bovespa 112531.66 -0.77

Mexico IPC 47781.45 -0.17

Chile IPSA 5623.86 0.49

Argentina MerVal 145682.47 0.669

Colombia COLCAP 1238.96 0.28

Currencies Latest Daily % change

Brazil real 5.1645 -1.33

Mexico peso 20.0628 -1.21

Chile peso 912.5 -1.59

Colombia peso 4415.95 -1.40

Peru sol 3.8521 -0.28

Argentina peso 142.5700 -0.20

(interbank)

Argentina peso 268 1.49

(parallel)

(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru

Editing by Marguerita Choy)

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