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Mexico's judicial reform stokes investor fears; analysts

bullish

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Brazil policy decision due on Wednesday

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Latam FX flat, stocks creep 0.1% higher

By Ankika Biswas

Sept 17 (Reuters) - Most Latin American currencies fell

against the dollar on Tuesday, as investors grew cautious at the

start of a two-day Federal Reserve monetary policy meeting that

would be crucial in shaping the ongoing global risk appetite.

The MSCI index for Latam currencies was flat

as of 1441 GMT, after a three-day winning streak, while the

stocks gauge edged 0.1% higher.

Fresh data showed U.S. retail sales unexpectedly rose in

August, suggesting that the world's largest economy remained on

a solid footing through much of third quarter.

With market bets of a 50-basis-point U.S. rate cut picking

up steam, there seems to be a discord in expectations from

investors and economists on the quantum of a cut on Wednesday.

Economists, who foresee a 25-bps cut, argue that the economy is

not in distress to warrant a 50-bps one.

The Federal Reserve starts its two-day monetary policy

meeting on Tuesday.

Mexico's peso was among the worst hit Latam

currencies, down 0.5% and falling for the second straight day,

while the stock index rose 1% to top regional peers.

The country's judicial reform has triggered investor

concerns about uncertainty over the rule of law and the strength

of the government's institutions, yet with the reform now priced

in, some analysts argue there may be buying opportunities

forming.

Mexican financial markets have been on a turbulent ride this

year since the June elections. The Mexican peso, among

the best-performing EM currencies, is on track for its largest

yearly decline since 2016 and the benchmark stock index

is set for its steepest yearly fall since 2018.

"We expect potential constitutional changes in the coming

months. One-third of our participants expect new administration

policies in Mexico to have a negative impact on asset prices,"

Bank of America analysts noted.

They also highlighted that participants in a "Latam Fund

Manager Survey" are more constructive about Brazil than Mexico,

and expect Chile to outperform among the Andean nations.

Among others, Chile's peso and Peru's sol were

down 0.4% and 0.5% against the greenback, respectively, hurt by

weak copper prices.

Colombia's peso was also down 0.5%, with Citi

analysts flagging that the Congress postponed Colombia's budget

discussions to September 25.

However, Brazil's real bucked the weak trend in Latam

FX with a modest rise of 0.1%.

Data showed Brazil's inflation as measured by the IGP-10

price index rose 0.18% in September, after a 0.72% gain in

August.

This comes ahead of Brazil's policy decision on Wednesday,

where interest rates are expected to rise by 25 basis points.

This would mark the start of a short tightening campaign to

quash persistent inflationary trends, moving the opposite way to

its peers.

A Reuters poll showed Argentina's economy likely shrank 1.4%

in second quarter year-on-year, the fifth such decline as a

recession deepens under a tough austerity drive by libertarian

President Javier Milei. The data is due on Wednesday.

Key Latin American stock indexes and currencies at 1441 GMT:

Equities Latest Daily % change

MSCI Emerging Markets 1091.34 0.49

MSCI LatAm 2266.55 0.20

Brazil Bovespa 134534.16 -0.43

Mexico IPC 52554.1 1.03

Chile IPSA 6334.55 -0.19

Argentina Merval 1798742.55 -0.779

Colombia COLCAP 1317.75 -0.02

Currencies Latest Daily % change

Brazil real 5.5053 0.09

Mexico peso 19.2957 -0.46

Chile peso 926.4 -0.54

Colombia peso 4255.3 -0.53

Peru sol 3.7813 -0.44

Argentina peso (interbank) 961 0

Argentina peso (parallel) 1255 0.796812749