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EMERGING MARKETS-Brazilian stocks slammed by fears of govt interference, FX down

Susan Mathew and Ambar Warrick
·3 min read
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* Petrobras, Bovespa set for worst day since March * Coronavirus aid extension in Brazil to be discussed thisweek * Mexican peso down for sixth straight session * Chile's peso sole gainer (Adds details, updates prices) By Susan Mathew and Ambar Warrick Feb 22 (Reuters) - Brazil's benchmark Bovespa index tankedon Monday as oil major Petrobras plummeted 21% following theouster of its investor-backed chief executive, while LatinAmerican stocks and currencies fell as higher inflationexpectations hurt sentiment. After weeks of sparring between CEO Roberto Castello Brancoand Brazilian President Jair Bolsonaro on fuel prices, formerDefense Minister and retired army general Joaquim Silva e Luna,who has no oil and gas experience, was appointed to take over. Branco's ouster could force a broader shakeup at Petrobras,which has steered toward more market-friendly and lesspolitically driven policies in recent years. Petrobras shares were on course topost their sharpest one-day decline since March last year, aswas the Bovespa, which sank nearly 4%. "The reversal of these types of practices by Bolsonaro earlyin his administration was a key credit positive for Brazil'squasi-sovereigns," said Citigroup strategists. "A reversal of this policy is a clear credit negative." Banco do Brasil, caught up in a spat withBolsonaro over branch closings, slumped 11%, while power companyEletrobras skidded nearly 3% amid signs of thepresident's interference in the power sector. Brazil's real fell as much as 2.8%, hittinglows not seen since November last year, while the cost to insureexposure to Brazil's sovereign debt jumped 22 basis points fromFriday's close. "Local assets will underperform across the board in the veryshort-term," Citigroup warned, adding that a break in the key5.50 level of dollar-real pair could see further continuation ofweakness in the real. Investors also have their eyes on a discussion regarding anextension of Brazil's emergency aid bill this week, with eyes oncost cuts elsewhere to keep spending within the limit. Worries about stretched fiscal spending have caused the realto lag its emerging market peers widely in 2020. This year, thecurrency is down about 6% so far. Other currencies in Latin America alsodropped, pressured by rising U.S. Treasury yields and inflationexpectations. Higher U.S. yields pressure risk-driven assets by offeringrelatively stronger and safer returns. In its sixth straight day in the red, Mexico's pesohit its lowest since early November as a deep freeze in Texascontinued to raise concerns about a hit to factory activity inthe country. A corresponding surge in oil prices failed to support thepeso, while Colombia's peso also dropped. Surging copper prices saw Chile's peso as the onlygainer for the day. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1402.48 -1.93 MSCI LatAm 2311.50 -3.8 Brazil Bovespa 114019.83 -3.72 Mexico IPC 45035.62 0.3 Chile IPSA 4569.36 -1.18 Argentina MerVal 49446.07 -3.033 Colombia COLCAP 1348.63 -0.29 Currencies Latest Daily % change Brazil real 5.4412 -1.08 Mexico peso 20.6505 -1.09 Chile peso 706.1 0.27 Colombia peso 3591 -0.60 Peru sol 3.6518 0.00 Argentina peso 89.4300 -0.30 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by SteveOrlofsky and Dan Grebler)