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NO WEEKLY BRIEF NEWSLETTER FOR THE WEEKEND OF OCT. 16-17

EMERGING MARKETS-FX hurt by strong dollar; Latam stocks join global sell-off

·3 min read

* Political noise rattles Argentine markets * Brazil inflation forecast raised sharply * Brazil's Log-In Logistica jumps on controlling stake bid (Adds comments, updates prices throughout) By Susan Mathew and Shreyashi Sanyal Sept 16 (Reuters) - Emerging market currencies took a hit on Thursday as surprisingly chipper U.S. retail sales data sent the dollar rising, while stocks followed global markets into the red on China woes. Brazil's real led the charge in Latin America, losing 0.7%. The Economy Ministry sharply raised its forecasts for inflation measured by the IPCA consumer price index to 7.9% this year, from 5.9% previously. The central bank's hiking cycle to control inflation has helped the currency from a spiral as the political backdrop becomes cloudier going into 2022 elections. "The environment for the real is likely to remain difficult; among other things, domestic factors such as President Jair Bolsonaro's unsteady policies limit the real's appreciation potential," said Alexandra Bechtel, an FX and EM analyst with Commerzbank. Brazil's federal electoral court said it is set to probe the funding of last week's rallies in support of Bolsonaro, who is down in the polls as citizens grew disillusioned by his handling of the pandemic which also threw up allegations of corruption. Political ructions rattled Argentine assets after Interior Minister Eduardo de Pedro offered his resignation along with several other hard-left officials, signaling a rift within the ruling coalition after a bruising primary election loss. Argentine markets had welcomed a lead for the conservative opposition in mid-terms primaries earlier this month. Most other Latam currencies fell as the dollar was lifted following upbeat U.S. retail sales data, but separate data showed weekly jobless claims rose. All eyes are on the U.S. Federal Reserve's stance next week. EM stocks fell 1%, their worst session in four weeks, tracking Wall Street and dented by worries over weak data from China and Beijing's increasing crackdowns on businesses. China is a major destination for Latam's basic material exports. "Although EM equities have started to recover in the past two weeks, we think it is too early to assume the market is going to maintain a cyclical recovery," said Wouter Sturkenboom, chief investment strategist, EMEA and APAC, at Northern Trust Asset Management. "The risk associated with regulatory tightening in China is still elevated, which translates to a higher required risk premium." Brazil's Bovespa equity index dropped 1.1% extending losses to a third straight session, weighed the most by miner Vale as iron ore prices fell. But Brazilian logistics company Log-In Logistica Intermodal soared 37% after Swiss shipping group MSC made an unsolicited offer to buy a controlling stake of up to 67% in it. Key Latin American stock indexes and currencies at 1935 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1275.70 -1.01 MSCI LatAm 2373.00 -1.18 Brazil Bovespa 113815.74 -1.08 Mexico IPC 52192.33 0.73 Chile IPSA 4465.47 0.71 Argentina MerVal 79527.72 1.324 Colombia COLCAP 1324.06 0.15 Currencies Latest Daily % change Brazil real 5.2725 -0.70 Mexico peso 19.9390 -0.43 Chile peso 782.4 -0.64 Colombia peso 3808.8 0.10 Peru sol 4.0921 0.18 Argentina peso (interbank) 98.3000 -0.04 Argentina peso (parallel) 183 1.09 (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Editing by Marguerita Choy and Diane Craft)

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