EMERGING MARKETS-Latam FX hits over 5-month low as ‘stagflation’ fears grow

* Mexican peso hits 6-month low, auto production slumps * Brazil’s real at over 5-month low * Latam stocks fall in early trade By Ambar Warrick and Federica Urso Oct 6 (Reuters) – Latin American currencies slipped to a more-than five-month low on Wednesday following weak economic data and as a spike in oil prices stoked fears of overheated inflation. MSCI’s index of Latin American currencies slipped 0.8% to its lowest level since late-April, as investors feared that the jump in oil prices could keep price pressures elevated and throttle economic growth in emerging markets. “There are certain emerging markets countries that will benefit, most particularly the oil producing countries, but on a broad note these recent spikes in oil prices are negative for emerging markets as they further fuel the stagflation fear,” said Jakob Christensen, chief analyst, head of EM research at Danske Bank. Mexico’s peso dropped as much as 1.6% to a more-than six-month low of 20.8807 to the dollar, as data showed production in the country’s major automobile sector fell sharply in September, while auto exports also slowed. While higher oil prices usually benefit the peso, given Mexico’s large oil exports, the currency slumped as market volatility saw investors move out of using the currency for carry trade. Brazil’s real lost 0.6% to reach a more-than five-month low as data showed retail sales fell in August due to the lingering effects of the COVID-19 pandemic. A separate reading showed automobile production rose in September, but remained under pressure from supply shortages of crucial parts. Investors were now also awaiting a vote next week over a proposed fuel tax reform – a hot political topic in Brazil, as President Jair Bolsonaro seeks to calm frustrations over rising costs. Currencies of copper exporters Chile and Peru fell 0.7% and 0.1% respectively as prices of the red metal slumped on concerns over slowing Chinese demand. In Peru, the government struck a deal to avoid road blockades and potential production halts at the Las Bambas copper mine, which accounts for some 2% of global copper supply. Fears of widespread defaults in China’s massive property market, coupled with hawkish cues from the U.S. Federal Reserve, have weighed on emerging markets in recent sessions. Danske Bank’s Christensen said monetary policy tightening in the West would be negative for EMs as “funding costs become more expensive,” and that markets were “not out of the woods yet” with regards to China’s potential debt crisis. Latin American stocks fell in early trade, tracking weak cues from the U.S. market as investors fretted over slowing economic growth. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1224.45 -0.98 MSCI LatAm 2159.78 -2.24 Brazil Bovespa 108313.08 -1.94 Mexico IPC 50723.63 -0.65 Chile IPSA 4146.01 -1.89 Argentina MerVal – – Colombia COLCAP 1373.26 -0.72 Currencies Latest Daily % change Brazil real 5.5159 -0.60 Mexico peso 20.7388 -0.90 Chile peso 816.8 -0.72 Colombia peso 3787.51 -0.17 Peru sol 4.134 -0.12 Argentina peso 98.9200 -0.01 (interbank) (Reporting by Ambar Warrick; Editing by Alison Williams)