What’s going on here?
A tech outage and US election volatility are dragging down Latin American currencies, notably impacting Brazil’s real and Chile’s peso.
What does this mean?
Latin American currencies are under pressure this week, facing their largest decline in over a month. MSCI’s index tracking these currencies dropped by 1.2%, as a global tech outage and uncertainty around the US election spooked investors. Brazil’s real, already down nearly 13% year-to-date amid concerns about government spending, slipped another 0.2%. Chile’s peso wasn’t spared either, falling by 0.2% and poised for the biggest weekly drop in four months due to a dip in copper prices. Meanwhile, Brazil announced a significant budget freeze, aiming to meet fiscal targets amidst rising sovereign bond yields.
Why should I care?
For markets: Unsteady ground in Latin America.
The Latin American market saw mixed reactions this week. While Azul’s stock managed a 3% rise despite the tech outage, Bradesco stayed flat and LATAM Airlines lost 0.4%. The Bovespa index slightly gained by 0.3%, thanks to a substantial 5% jump in Embraer shares after a robust second quarter. Elsewhere, Argentina’s MerVal index climbed by 2.1%, reflecting a positive shift, though dollar bond yields increased. All eyes remain on upcoming policy decisions in Mexico, as Banxico may introduce rate cuts soon.
The bigger picture: Coordinating crises.
This week painted a complicated picture for emerging markets. The MSCI Emerging Markets index dipped by 1.58%, but the MSCI LatAm index saw a modest rise of 0.17%. Daily currency performance varied, with the Brazilian real and Mexican peso inching up, while the Peruvian sol and both versions of the Argentine peso displayed more subdued movements. As Latin American economies navigate through tech mishaps and political turbulence, fluctuations in currency and stock market performances underscore broader vulnerabilities and investor sentiments.
