LatAm assets mixed after key inflation data; Argentine peso relapse

By Nikhil Sharma

Latin American assets were mixed on Thursday as investors processed largely benign inflation data from regional economic behemoths, Brazil and Mexico, while Argentina's peso fell sharply amid doubts over U.S. financial support.

MSCI's index for Latin American currencies (.MILA00000CUS) was largely unchanged, while a parallel gauge of the region's equities (.MILA00000PUS) edged 0.1% lower.

Argentina's peso USDARS plunged 2.6% after staying mostly stable this week amid a likely U.S. Treasury support, which included selling more than $1.6 billion in recent sessions.

The decline reflects scepticism over Washington's pledged support involving a $20 billion credit swap with the local central bank, likely to materialize ahead of President Javier Milei and President Donald Trump's meeting on October 14.

"The market got a little bit of comfort in the US support, but we never got full details of how that's going to play out and what conditions are going to be made," said Alejandro Cuadrado, global head of FX and LatAm Strategy at BBVA.

In contrast, the local stock index IMV jumped 1.9%,

Marking a challenge to Milei's executive powers, Argentina's lower house on Wednesday approved a bill to restrain the use of presidential emergency decrees.

The Brazilian real USDBRL slipped 0.3%. Data showed annual inflation rose less than expected to 5.17% in September, remaining slightly outside the central bank's tolerance band.

"I don't think it (inflation data) changes things dramatically," BBVA's Cuadrado added.

"Inflation (in Brazil) is still about 5%. So, the deviation is enough for policymakers to keep a pretty cautious tone. They are just in a phase of calibrating a little bit of the hawkishness, but definitely far from taking a different stance."

Last month, the central bank stood pat on interest rates, keeping it at a near two-decade high of 15%, and indicated further such pauses in a bid to tame inflation.

Elevated rates make the real a carry favourite, up 13.3% year-to-date. Sao Paulo's main stock index IIBOV was steady and has gained 18.5% year-to-date.

Meanwhile, Brazil's Finance Minister Fernando Haddad said that the government will take time to evaluate budget-boosting alternatives, a day after the lower house removed an investment-tax overhaul proposal from a vote.

Mexico's local equity index ME slipped 0.4%, while the local peso USDMXN remained steady. Mexico's annual inflation rate quickened in September at a pace slightly below expectations, and remained within the central bank's target, reinforcing hopes for further easing.

The central bank delivered its 10th consecutive rate cut last month, taking the key rate to its lowest level since 2022 at 7.5%.

The peso of the world's biggest copper producer, Chile, USDCLP rose 0.36% as red metal prices reached their highest level since May 2024. The Santiago stock index SP_IPSA gained 0.65%.

Peruvian stocks (.MXNUAMPESCPGPE) edged up 0.1% to trade at record levels, while local currency sol USDPEN flattened ahead of the central bank rate decision, likely to pause rates at 4.25%.

Elsewhere, Israeli markets cheered the Gaza ceasefire deal that could ease geopolitical tensions in the Middle East and enable the release of Israeli hostages.

Israel's long-dated international bonds rose, with 2120 maturity (US46513JB593=TE) rising more than 1.3 cents to the dollar.

The currency shekel USDILS added 0.2% to surpass a three-year high, while Tel Aviv shares TA35 surged 2.25% to close at an all-time high.

Key Latin American stock indexes and currencies: