Latin American Assets Impacted By Strong US Jobs Data

Most Latin American stocks and currencies fell on Friday after data showing strong jobs growth in the United States created room for a more hawkish US Federal Reserve.

MSCI’s index of Latin American currencies. MILA00000CUS fell 0.8% and stocks .MILA00000PUS dropped 0.5%. Still, both the indexes were set for weekly gains with stocks set to rise for the fourth straight week helped by broader dollar weakness and strong commodity prices.

Mexico’s peso MXN= was among the worst performers for the day, down 0.8% as data showed automotive production and exports fell in January from a year earlier.

The currency of Latin America’s largest economy Brazil BRBY,BRL= slipped 0.6%, but was headed for a fourth straight week of gains. The real was the best regional performer this week, adding 0.7% after the central bank hiked interest rates.

US Treasury yields rose after the Labor Department’s report showed nonfarm payrolls increased more-than-expected last month.

The labor market resilience could trim expectations that economic growth will slow significantly in the first quarter after robust growth in the fourth quarter.

The strong jobs data gives the Fed a reason to start the rate hike cycle at a 50 bps hike in March, this could put some pressure on emerging market assets because a lot of EM debt is tied to US rates which could add to interest expenses.

The dollar index =USD inched higher after the jobs report, but has weakened 1.9% this week, its biggest weekly decline since November 2020. The reduction in the dollar was mostly on account of less hawkish comments from some officials at the US central bank regarding its impending cycle of interest rate hikes.

A Reuters poll of market strategists said that emerging market currencies from countries where central banks have already begun raising rates will outperform the rest.

The Chilean peso CLP= was the top weekly loser, down 1.5% despite a 3% gain in copper prices this week.