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EMERGING MARKETS-Brazilian real tumbles over 1%, lags Latam FX peers

EMERGING MARKETS-Brazilian real tumbles over 1%, lags Latam FX peers

· 03/15/2021 15:33
EMERGING MARKETS-Brazilian real tumbles over 1%, lags Latam FX peers

Brazil's real leads declines among Latam FX

Chilean peso rises with higher copper prices

Argentine stocks hit over two-week highs

Adds comments, bullets; Updates prices throughout

By Shreyashi Sanyal

- Brazil's real underperformed broader emerging market peers on Monday, after its best week in more than three months, with eyes on a central bank meeting where surging inflation is expected to force a rate hike.

The real BRBY, BRL= fell 1.3% to 5.631 per dollar after gaining 2.5% last week. On the year, the currency is one of the worst-performing among emerging market peers, down nearly 8% compared with a 0.6% slip in the broader EM index .MIEM00000CUS.

"Prospects for the Brazilian real suffered from a surprise Supreme Court decision to overturn the conviction of former President Lula da Silva," said Alejo Czerwonko, chief investment officer, emerging markets Americas at UBS.

Czerwonko said this combined with current Brazilian President Jair Bolsonaro's push for more fiscal spending to appeal to voters would increase the already high level of fiscal risk in the country and advised investors to remain on the sidelines while investing in the real.

Brazil's expected inflation for 2021 shot up to a new high of 4.6%, a central bank survey showed, significantly above the bank's year-end target of 3.75%. Rising inflation, deepening fiscal uncertainty and a weak exchange rate could see a 50 basis point increase in interest rates on Wednesday, a Reuters poll showed. nL8N2LA568

The hike would be the first in six years.

The bank sold 10,000 foreign exchange swaps contracts at auction on Monday, continuing its intervention to support the currency.

Meanwhile, Bolsonaro is weighing candidates to replace Health Minister Eduardo Pazuello, sources said, in what would be the fourth person in a year in the role as COVID-19 cases rage out of control. nL1N2LD10H

As the dollar strengthened, EM currencies trimmed gains, with some moving into the red. FRX/

Mexico's peso MXN= rose, while copper producer Chile's peso CLP= tracked prices of the red metal higher. The Chilean peso is among the best performing Latam currency year-to-date thanks to copper prices hitting decade highs. MET/L

Colombia's peso COP= extended losses to a third straight session as crude prices declined. O/R

Focus this week will be on the U.S. Federal Reserve's rate decision on Wednesday as well as the first meeting between Washington and Beijing since U.S. President Joe Biden took office.

Latam stocks rallied, with Argentine shares .MERV in the lead, up 2.9% to hit over two-week highs.


Key Latin American stock indexes and currencies at 1916 GMT:


Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1340.60

-0.56

MSCI LatAm .MILA00000PUS

2299.41

-0.29

Brazil Bovespa .BVSP

114652.22

0.43

Mexico IPC .MXX

47769.87

0.2

Chile IPSA .SPIPSA

4913.94

0.4

Argentina MerVal .MERV

50501.83

2.916

Colombia COLCAP .COLCAP

1357.59

0.29




Currencies

Latest

Daily % change

Brazil real BRBY

5.6311

-1.29

Mexico peso MXN=D2

20.6694

0.27

Chile peso CLP=CL

722.4

0.18

Colombia peso COP=

3557.72

0.44

Peru sol PEN=PE

3.7027

0.16

Argentina peso (interbank) ARS=RASL

91.0600

-0.22

Argentina peso (parallel) ARSB=

143

-0.70



(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
Editing by Marguerita Choy)

((Shreyashi.Sanyal@thomsonreuters.com; +1 646 223 8780; +91 961 144 3740; Twitter: https://twitter.com/s_shreyashi;))