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EMERGING MARKETS-Latam stocks, FX slides on rate-hike jitters

·3 min read

* Lula widens lead over Bolsonaro ahead of Brazil election * Brazil cenbank not focused on monetary easing now - governor * Chile central bank to likely lift rates to 10.50% (Updates prices) By Anisha Sircar and Amruta Khandekar Sept 6 (Reuters) - Latin American stocks slumped nearly 3%, while major currencies lost ground against a firming dollar on Tuesday amid a risk-off sentiment due to rising fears of rate hikes and a global slowdown, with Chilean peso down ahead of central bank decision. Brazil's benchmark Bovespa stock index fell 2.2% and the currency real slipped 1.6% against the dollar after a senior policymaker said Brazil's central bank will need to be cautious about handling the end of its current tightening cycle and may still raise interest rates this month, underscoring that inflation is only beginning to subside. Volatility ahead of the upcoming elections continued, with recent polls showing former President Luiz Inacio Lula da Silva leading in the presidential race, followed by current President Jair Bolsonaro. "Bolsonaro still has a 20–25% chance of being re-elected, thanks in large part to his use of government spending to increase support... Additional fiscal expansion ahead of the election next month cannot be ruled out," TD Securities strategists Elizabeth Johnson and Wilson Ferrarezi said in a note. Chilean stocks slumped 2.65% as a market rally following the rejection of a proposed new progressive constitution petered out. Rating agency Fitch said the rejection of new constitution prolongs uncertainties stemming from constitutional reform. The peso fell 1.3% ahead of the decision later in the day where the Central Bank of Chile is expected to raise its benchmark interest rate to 10.50% from 9.75% previously. Also weighing on resource-rich Latam currencies, crude prices fell, triggered by concerns over crumbling demand amid new COVID-19 lockdowns in China and the possibility of more interest rate hikes. Currencies of major crude exporters including Colombia's peso and Mexico's peso lost 0.4% and 0.7%, respectively. Broadly pressuring emerging market currencies, the U.S. dollar index climbed 0.55% after a report on the U.S. services industry in August reinforced the view that the economy was not in recession, while U.S. interest rates stay poised for sharp rises and as recession talk stalks Europe. "With the global economy slowing and interest rates rising, new orders (both external and domestic) are likely to remain soft across much of the emerging world over the coming months... High inflation has also played a role in dampening domestic demand," said William Jackson, chief emerging markets economist at Capital Economics. Latam currencies and stocks have been under pressure this year on risks of drying-up capital inflows, spiralling inflation, geopolitical risks and fears of an acute global economic downturn. Key Latin American stock indexes and currencies at 1900 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 964.02 -0.39 MSCI LatAm 2126.03 -2.91 Brazil Bovespa 109689.71 -2.24 Mexico IPC 45938.12 -0.19 Chile IPSA 5622.20 -2.65 Argentina MerVal 137597.07 -0.485 Colombia COLCAP 1225.07 -0.94 Currencies Latest Daily % change Brazil real 5.2353 -1.58 Mexico peso 20.1362 -0.75 Chile peso 892.9 -1.32 Colombia peso 4473.95 -0.36 Peru sol 3.897 -0.54 Argentina peso (interbank) 140.5600 -0.22 Argentina peso (parallel) 272 -0.74 (Reporting by Anisha Sircar, Amruta Khandekar and Devik Jain in Bengaluru; Editing by Jonathan Oatis and Lisa Shumaker)