EMERGING MARKETS — Brazil's real slides, dragging LatAm currencies lower

Brazil's currency hits lowest in nearly two weeks Flavio Bolsonaro slightly ahead of Lula - Quaest poll Brazil retail sales rise less than expected in August (Updates with afternoon trading) By Ragini Mathur, Sudeshna Ghoshal and Niket Nishant Oct 15 (Reuters) — Latin American currencies slipped on Thursday and were on course for their third consecutive session of declines, dragged down by Brazil's real, which slipped following cooler-than-expected retail sales data and election uncertainty. Data from the region's largest economy showed retail sales rose less than expected in August, underscoring the drag from high interest rates on consumer demand.

"High borrowing costs and weak confidence will continue to restrain discretionary purchases, limiting the scope for a sustained rebound before year-end," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics. The real slid 1.28% to 5.0915 per dollar and hit its lowest in nearly two weeks. MSCI's index of Latin American currencies fell 0.36%. Brazil's equity benchmark also slid 0.4% and was on track to end lower for a third straight session.

Markets remained watchful of political developments ahead of the October 25 presidential runoff, after a Quaest poll showed Senator Flavio Bolsonaro with 46% support against 44% for President Luiz Inacio Lula da Silva, leaving the candidates about even within the survey's two-percentage-point margin of error. The uncertainty around the election kept investors cautious about the policy outlook of the next government. Bolsonaro has also secured backing from multiple parties ahead of the runoff, offering an early indication of a possible governing coalition should he win.

Brazil's Senate on Wednesday approved a constitutional amendment reducing the workweek to five days from six, handing Lula a legislative win. Meanwhile, Chile's peso rose 0.41% and Mexico's currency gained 0.34%. Both were among the best performers in the region. Stocks Lose Shine As Ai Selloff Eases MSCI's gauge of regional stocks lost 0.45%, erasing slim gains from earlier in the day as investors returned to tech stocks and dumped commodity-heavy Latin American equities, which are generally used as a hedge against AI-related volatility.

Regional assets had suffered a blow on Wednesday after US consumer inflation data for Septembershowed accelerating price pressures, which fueled expectations that the Federal Reserve could raise interest rates as soon as this month. A rate hike by the Fed typically boosts the US dollar and weakens Latin American currencies. Thierry Wizman, global FX & rates strategist at Macquarie Group, said that, despite this week's hot US inflation data, investors were increasingly focused on the outlook for AI spending.

"Yesterday's action revealed exactly what could threaten the USD and bring US yields lower in the next few months and in 2027: a reduction in the outlook for AI investment. That's because it would reduce bond supply and impair US growth, all else equal," Wizman added. Elsewhere, Mexico's benchmark stock index gained 1.3%. Chilean stocks were little changed even as prices of copper, the country's key export, fell to their weakest level in nearly two weeks.

MET/L Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1608.94 -3.02 MSCI LatAm 3299.06 -0.45 Brazil Bovespa 205663.82 -0.41 Mexico IPC 67683.2 1.34 Chile IPSA 10,971.88 0.05% Argentina MerVal 2849301.14 0.475 Colombia COLCAP 2588.51 0.24 Currencies Latest Daily % change Brazil real 5.0915 -1.28 Mexico peso 18.4169 0.34 Chile peso 979.93 0.41 Colombia peso 3166 0.17 Peru sol 3.4344 -0.18 Argentina peso (interbank) 1512.5 0.07 Argentina peso (parallel) 1525.0 1.64 (Reporting by Ragini Mathur, Sudeshna Ghoshal and Niket Nishant in Bengaluru; Editing by Sanjeev Miglani and Diti Pujara) ((mailto:Ragini.Mathur@thomsonreuters.com;)