Latam assets on track for sixth consecutive weekly gains

By Pranav Kashyap, Twesha Dikshit and Nikhil Sharma

Latin American equities and currencies edged closer to a sixth consecutive weekly gain on Friday, buoyed by mounting expectations of U.S. interest rate cuts, while political uncertainty shrouded Brazil after former President Jair Bolsonaro's conviction .

A gauge of Latin American currencies (.MILA00000CUS) rose 0.41% to a record high, marking its third straight record-setting session. A parallel stock index (.MILA00000PUS) advanced 0.08% on Friday.

In Brazil, investors assessed the potential economic and political ramifications of Bolsonaro's 27-year, three-month prison sentence for plotting a coup to retain power following his 2022 electoral defeat.

Despite political unrest, Brazil's local currency, the real USDBRL, remained resilient, climbing 0.7% to its highest level in over a year.

"The market's reaction so far suggests it was expecting this court verdict, even though the possibility of turbulence and short-term political instability has risen, which could increase risk premia," Dev Ashish, senior Latin America economist at Societe Generale, said in a note.

Fresh data showed Brazil's services sector expanded for the sixth consecutive month in July, defying a tight monetary policy environment.

While August's inflation data showed a negative monthly reading, the central bank emphasized the need to maintain restrictive interest rates for an extended period, due to persistent price pressures that remain above the 3% target, which includes a tolerance band of 1.5 percentage points on either side.

The central bank is widely expected to hold rates steady at its policy meeting next week.

"There is still little resolution to where the political dynamic in Brazil will take us, but the short-term risks to overall sentiment remain high under the prospect of new sanctions from the U.S.," said Thierry Wizman, global FX and rates strategist at Macquarie.

Meanwhile, the Mexican peso USDMXN held steady for the day, while the country's main stock index ME gained 0.46% to reach an all-time high, both poised for strong weekly advances.

Latam currencies and equities this week benefited from a weaker U.S. dollar, following data that pointed to a softening labor market and reinforced expectations for a Federal Reserve interest rate cut in September.

However, Argentine assets remained under pressure after President Javier Milei's defeat in Sunday's Buenos Aires provincial election, raising concerns over the viability of his austerity agenda ahead of October's midterms.

Buenos Aires stocks IMV fell 3.2% on Friday, heading for their worst weekly performance in more than five months. The local peso USDARS dropped 1.4% to a fresh record low, marking its seventh consecutive losing session and its worst week since December 2023.

Colombia's peso USDCOP was on track for a seventh straight weekly gain — its longest run since December 2020, while the stock index ICAP recorded a weekly loss.

Elsewhere, Russia's central bank trimmed interest rates by 100 basis points to 17%, a smaller reduction than expected, citing stubbornly high inflation and elevated expectations. Currency ruble USDRUB_SPT ended 0.6% higher on Friday but was down 3.4% for the week.

Meanwhile, Fitch affirmed South Africa's credit rating at 'BB-' with a "stable" outlook, highlighting persistent growth challenges due to a sluggish recovery in logistics, weak investment levels and uncertainty surrounding external trade relations.

Key Latin American stock indexes and currencies: