EMERGING MARKETS-Latam FX, stocks start 2024 in the red as investors question Fed rate cut bets

Credit: REUTERS/PILAR OLIVARES

By Siddarth S and Lisa Pauline Mattackal

Jan 2 (Reuters) - Emerging market assets started the first trading day of 2024 on a sour note on Tuesday as investors questioned strong bets around U.S. interest rate cuts this year, with indexes tracking Latin American markets on pace for their worst day in nearly three months.

The MSCI index tracking Latin American stocks .MILA00000PUS slid 2%. A basket of regional currencies .MILA00000CUS fell 1% against a resurgent dollar. FRX/

Both indexes were set for their worst daily decline since October, while MSCI's emerging market currency index .MIEM00000CUS slumped 0.8% in its worst day since February.

Emerging market assets ended 2023 on a bright note, after their strongest showing in years, with a risk rally fueled by expectations of the U.S. Federal Reserve cutting borrowing cuts as early as March.

However, some of that optimism faded, with the dollar jumping and U.S. Treasury yields rising, pressuring risk assets.

"The market’s reaction indicated it was pricing in cuts for 2024 at twice the pace that the Fed signaled. That scenario would play out, however, only if U.S. economic growth slowed to a much more dramatic degree than the soft landing ... that the Fed seems to be anticipating," said Adam Farstrup, head of multi-asset, Americas, at Schroders.

Market participants will eye data on the U.S. labor market due later this week for further evidence on the rate-cut trajectory.

On a brighter note, however, Brazil's Sequoia LogisticaSEQL3.SA jumped as much as 115% in its best day since its debut, hitting its highest levels since September, after it signed a preliminary agreement with shareholders of peer Grupo MOVE3 for a merger of the companies.

However, the Bovespa index .BVSP slipped 1.4%, while Mexican stocks .MXX were down 1%.

The Brazilian real BRL=, Mexican peso MXN=, Chilean peso CLP= and the Colombian peso COP= fell between 0.2% and 1.3%.

Copper prices also slipped on a stronger dollar, further weighing on the Chilean peso. Chile is the world's largest copper producer.

Chile's IMACEC economic activity index rose 1.2% in November from the previous year, slightly above market expectations of a 1% increase. Chile's benchmark IPSA index .SPIPSA edged up 0.2%.

"We expect the downward adjustment of the (Chilean) economy to be mostly behind us and, going forward, we anticipate growth to continue," Goldman Sachs economists said in a note.

A manufacturing purchasing manager's index (PMI) fell for both Brazil and Mexico in December, while PMIs across other emerging markets - Turkey, Poland and Czech Republic also fell.

Brazil's record 2023 trade surplus may be tough to repeat this year, private economists and government officials agree, as falling interest rates are expected to boost imports.

Key Latin American stock indexes and currencies at 2000 GMT:

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1014.06

-1.04

MSCI LatAm .MILA00000PUS

2607.90

-2.06

Brazil Bovespa .BVSP

132320.62

-1.39

Mexico IPC .MXX

56803.88

-1.01

Chile IPSA .SPIPSA

6210.59

0.2

Argentina MerVal .MERV

930419.67

0.077

Colombia COLCAP .COLCAP

1216.85

1.81

Currencies

Latest

Daily % change

Brazil real BRBY

4.9169

-0.04

Mexico peso MXN=D2

17.0429

-0.46

Chile peso CLP=CL

884.4

-0.34

Colombia peso COP=

3880.07

-0.19

Peru sol PEN=PE

3.7098

-0.16

Argentina peso (interbank) ARS=RASL

810.6000

-0.26

Argentina peso (parallel) ARSB=

985

4.06

(Reporting by Siddarth S and Lisa Mattackal in Bengaluru; Editing by Andrea Ricci)

((Siddarth.s@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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