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EMERGING MARKETS-Latam FX, stocks notch weekly gains on commodities boost, easing dollar

·3 min read

* Brazil posts deflation in August as fuel prices fall * Lula may tap running mate to head economic policy - aides (Updates with closing prices) By Anisha Sircar and Sruthi Shankar Sept 9 (Reuters) - Major Latin America currencies gained on Friday as the dollar retreated from recent peaks, while stronger commodity prices also gave a fillip to stocks in the resource-rich region. The MSCI's index of Latam currencies gained 0.9%, marking weekly gains as a risk-on mood globally dented the dollar that had surged recently on expectations of a hawkish Federal Reserve. The region's equities index climbed 2.9% to record its best day in over two weeks as oil, iron ore and industrial metal prices surged against a weaker dollar, boosting commodity-linked stocks. Brazil's real added 1.3% to 5.15 per dollar. Data showed consumer prices in Latam's largest economy dipped 0.36% in August, marking the second consecutive month of deflation as fuel prices dip. "This is welcome news for the central bank, which has its next rate announcement a few hours after the Fed on September 21. A deceleration in the pace of hiking now appears completely appropriate and shouldn't unsettle the currency," BMO currency strategists Greg Anderson and Stephen Gallo wrote in a note. The real has been on a rocky path ahead of presidential elections in October. Former Brazilian President Luiz Inacio Lula da Silva could tap his centrist running mate to run economic policy if he wins a third term in October, four of his senior advisors told Reuters. JPMorgan downgraded Brazil's hard currency sovereign debt to "underweight", judging country's strong recent run could be about to run out of steam. The Mexican peso inched up 0.4%, while Colombia's peso added 1.0%. Chile's peso weakened 3.5% after a recent run up. "We expect inflation to have peaked in Q3 in Latin America, but CPI should only return its target ranges in various countries by 2024," economists at Oxford Economics said in a note. "We also see central banks in Chile, Brazil and Mexico cutting rates in H2 2023." Peru's sol was little changed after the central bank on Thursday slowed its pace of interest rate hike for the first time in 13 months. However, the bank's head of economic research said on Friday it "doesn't necessarily mean it was the last hike" of the current tightening cycle. Assets in the export-heavy region have been buoyed this year as commodity prices were boosted by Russia's war in Ukraine, but the U.S. central bank's aggressive tightening measures have sapped risk sentiment recently. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 970.19 1.35 MSCI LatAm 2206.58 2.85 Brazil Bovespa 112137.74 2.02 Mexico IPC 47038.93 1.63 Chile IPSA 5612.03 1.75 Argentina MerVal 144758.37 2.296 Colombia COLCAP 1222.51 1.63 Currencies Latest Daily % change Brazil real 5.1482 1.3% Mexico peso 19.8810 0.36 Chile peso 912.2 -3.38 Colombia peso 4345.95 1.03 Peru sol 3.8708 -0.01 Argentina peso (interbank) 141.3700 -0.16 (Reporting by Anisha Sircar and Lisa Pauline Mattackal in Bengaluru Editing by Alistair Bell and Josie Kao)