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EMERGING MARKETS – Mind-blowing central banks push Latam FX past larger peers this week

By on June 25, 2021 0

* MSCI Cancels Emerging Market Status Of Argentina * Mexican Peso Expected To Become Best Week For Over A Year * Latam FX To Raise Almost 3% This Week By Ambar Warrick June 25 (Reuters) – Mexican Peso extended its gains on Friday after a surprise interest rate hike, as Latin American currencies were expected to outperform their emerging market counterparts this week on a series of hawkish signals from the central bank. The peso rose 0.5% after jumping 1.6% on Thursday, its best day in 2021 so far. The currency was also set for its best week in over a year, surging 4.5%. The Mexican powerhouse unexpectedly raised rates to 4.25%, citing a recent rise in local inflation, as well as possible spillover effects on US prices. “This suggests to us that core year-over-year inflation and core inflation dynamics will need to show signs of easing, and that Banxico will continue to tighten policy (at a minimum) until ‘that is achieved, “said Sacha Tihanyi, director of emerging markets strategy at TD Securities, wrote in a memo. The Argentinian markets remained the center of attention after MSCI announced that it would reclassify its Argentina index to the status of autonomous markets, emerging markets, citing problems with tight capital controls. JPMorgan predicted $ 610 million in capital outflows from Argentina, due to the reclassification. But the peso has reacted little because of capital controls. The Brazilian real, which was stable on Friday, was expected to rise 3.5% this week after minutes from the last central bank meeting showed a 100 basis point hike was being considered. The real benefited greatly from a hawkish central bank and recently hit a year-long high. It is also one of the best performing emerging market currencies this year. Data on Friday showed Brazil’s consumer inflation surged during the first half of June, while a separate reading showed the country’s current account deficit was at its lowest in more than 13 years. The Chilean peso rose 0.8% and was expected to rise 2.6% this week after minutes from the last Chilean central bank meeting showed it was considering a hike in interest rates. The hawkish signals put the MSCI Latam Currency Index on track for a weekly gain of nearly 3%, outpacing a 0.3% rise in the broader emerging market currencies index. The Latam index has performed much better than its emerging market counterpart this year, adding more than 4%, compared to a gain of 1.4%. Latin American stocks have taken a similar step, having largely lagged relative to their peers until 2020. Sentiment towards emerging markets strengthened on Friday after data on US consumer spending – a key indicator of inflation for the Fed – remained unchanged in May, strengthening the Fed’s stance that inflation was likely to be transient. Main Latin American stock market indices and currencies: Latest daily change in% MSCI Emerging Markets 1381.11 1 MSCI LatAm 2704.38 0.65 Brazil Bovespa 129 472.86 -0.03 Mexico IPC 50 459.43 -0.2 Chile IPSA 4436, 76 0.35 Argentina MerVal – – Colombia COLCAP 1,277.75 -0.08 Currencies Latest daily change in% Brazil real 4.9050 -0.01 Mexican peso 19.7571 0.47 Chilean peso 727.83 0.77 Colombian peso 3743.05 0.54 Peruvian sol 3.9838 0.00 Argentine peso 95.5800 -0.02 (interbank) (Report by Ambar Warrick; edited by Angus MacSwan)