Brazilian assets slump weighs on Latam markets; Colombia in focus

Oil-export heavy economies have partly shielded the region from the fallout of the Middle East war, but the exposure to crude also makes it vulnerable to price fluctuations. Brent crude LCOc1 rose 1.6% as traders assessed signs of progress in Iran-Oman talks on shipping through the Strait of Hormuz, a crucial waterway for energy shipments. In Argentina, stocks .MERV dropped 3.49%. A Reuters poll showed inflation likely ran at a 2% monthly rate in July and is expected to decelerate very slowly. The Mexican peso MXN= rose 0.25%, reaching its highest since May 2024, the period during which Claudia Sheinbaum won general elections and was elected as president. Peruvian stocks .MXNUAMPESCPGPE dipped 0.5% as investors awaited a rate decision from the central bank later this week. J.P. Morgan upgraded its rating on the country to "overweight" from "underweight". Brazilian assets fell on Tuesday after a batch of data and hawkish minutes from the central bank's latest meeting weighed on sentiment, while elsewhere Colombia's benchmark index hit a seven-week high on hopes of an economic recovery. Brazil's benchmark stock index .BVSP fell 2.56% to a six-month low, also pressured by a downgrade by J.P. Morgan to "neutral" from "overweight", with the brokerage citing uncertainty over economic growth and elections later this year. The real BRL= fell 1.03% to a one-month low, aided little by the yield on 2-year local currency bonds BR2YT=RR jumping 11 basis points to a two-week high of 14%. Inflation in the region's largest economy eased in July, but came above economists' expectations. Following the data, minutes from the central bank's meeting earlier this month showed that policymakers acknowledged that tight monetary policy was weighing on economic activity, but also said that sticky price pressures needed interest rates to stay elevated. Investors are also keen on the outcome of October elections, as a poll showed President Luiz Inacio Lula da Silva's lead over right-wing Senator Flavio Bolsonaro was narrowing. A win for Lula could mean more fiscal expansion and keep the central bank more wary of monetary easing. "The central bank will also have potential different scenarios depending on the election outcome. But the market not pricing (any rate cuts) after November means that it is pricing already on the rates front, a high probability of Lula renewing the mandate," said Alejandro Cuadrado, Latin America strategist at BBVA. Reuters reported, citing two sources, that Bolsonaro's campaign is drafting a tighter fiscal framework that would curb spending growth as debt rises. MSCI's index tracking regional equities .MILA00000PUS fell 2.46%, while its currencies equivalent .MILA00000CUS dropped 0.65%. Bucking the regional trend, Colombian equities hit their highest in over seven weeks on hopes that fading price pressures and a new administration could help restore confidence in the country's economy. The COLCAP .COLCAP index rose 1.78%, touching levels not seen since June. The peso COP= also rose 0.45%. The gains show investors are betting on a recovery as the country enters a new phase under right-wing President Abelardo De La Espriella, who has pledged austerity measures to put the economy on a stronger footing. However, some investors cautioned against unfettered optimism, as the devastating earthquake that hit the region on Monday, killing at least 224 people, could lead to unforeseen disruptions. "The impacts of the earthquake that hit Colombia today are still unclear; the destruction could create supply disruption and price spikes in certain categories, though it could also weaken consumer demand," said Tim Hunter, senior LatAm economist at Oxford Economics.

Brazilian assets slump weighs on Latam markets; Colombia in focus

Other Latin American moves

Brazil weighs on regional markets

Colombia outperforms on recovery hopes

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