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EMERGING MARKETS-Hot U.S. CPI data sends Latam stocks, FX crashing

EMERGING MARKETS-Hot U.S. CPI data sends Latam stocks, FX crashing

Reuters · 09/13/2022 11:09
EMERGING MARKETS-Hot U.S. CPI data sends Latam stocks, FX crashing

Brazil July services activity up 1.1%, beating expectations

Colombia government seeks further 2023 budget increase

Chile launches plan to address weakened economy

Argentina inflation seen easing back from July peak

By Anisha Sircar and Amruta Khandekar

- Latin American currencies plunged on Tuesday as the dollar surged after data showed monthly U.S consumer prices unexpectedly rose in August, fanning fears of aggressive rate hikes in the world's largest economy.

The U.S. consumer price index gained 0.1% last month after being unchanged in July, the Labor Department said. Economists polled by Reuters had forecast a dip of 0.1%.

All major currencies were in the red, with Colombia's peso COP=, Mexico's peso MXN= and Chile's peso MXN= down more than 1% each.

"We're at a point where inflation (in Latam) is starting to cool faster than U.S. inflation and that differential creates risks for those currencies," said Edward Al-Hussainy, senior analyst at Columbia Threadneedle.

"Many Latam central banks are coming to the conclusion that they've broken inflation domestically, and therefore, their hiking cycles are likely to come to an end before the end of this year," added Al-Hussainy.

"On the other hand, clearly the Federal Reserve hiking cycle isn't anywhere done, so it creates a window for the dollar to strengthen again."

The Fed is seen delivering a third straight 75-basis point rate hike week, futures contracts tied to the Fed's policy rate showed.

"When (the Fed) starts to telegraph the rate increases are the end, you'll see (Latam) markets snap back into gear," said Robert Lutts, chief investment officer at Cabot Wealth Management.

The dollar index =USD pared earlier losses to jump 1.04% following the CPI data. Broader EM currencies .MIEM0000CUS reversed gains from earlier in the day to eye their worst day so far this month.

Brazil's real BRL=, BRBY= led Latam losses, plunging 1.5%, looking past upbeat data that showed services activity in the country rose 1.1% in July from June, above the median 0.5% increase forecast in a Reuters poll.

Regional stocks .MILA0000PUS and currencies .MILA0000CUS were set to snap a three-day winning streak as worries re-emerged over cost pressures and economic growth amid rising fears of a recession.

On Monday, Chile's government launched a plan to promote investment into 2023 that includes an array of tax breaks for the world's largest copper producer at a time when its economy is faltering.

Elsewhere, Colombia's government wants to expand its budget for 2023 by 14.3 trillion pesos ($3.28 billion), a finance ministry spokesperson said.

Ecopetrol ECO.CN inched 0.1% higher. The Colombian state-run oil company asked the oil regulator to suspend contracts for two fracking pilot projects for 90 days, the firm and two sources told Reuters.

Meanwhile, Argentina's inflation rate, heading towards 100% this year, likely eased in August versus a 20-year peak the month before, analysts polled by Reuters said.

Key Latin American stock indexes and currencies at 1441 GMT:

Stock indexes


Daily % change

MSCI Emerging Markets .MSCIEF






Brazil Bovespa .BVSP



Mexico IPC .MXX






Argentina MerVal .MERV








Daily % change

Brazil real BRBY



Mexico peso MXN=D2



Chile peso CLP=CL



Colombia peso COP=



Peru sol PEN=PE



Argentina peso (interbank) ARS=RASL



Argentina peso (parallel) ARSB=



(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru
Editing by Marguerita Choy)