LatAm Stocks and Currencies Slide as US Rate Bets, Brazil Probe Weigh

Latin American equities and currencies weakened on Friday, pressured by rising expectations of a US interest-rate increase and fresh political uncertainty in Brazil.

The MSCI gauge of Latin American stocks dropped 1%, putting it on course for its sharpest weekly decline in a month. The regional currencies index slipped 0.4% and was roughly flat for the week.

In Brazil, court documents unsealed on Friday revealed that Senator Flavio Bolsonaro, the leading right-wing challenger to President Luiz Inacio Lula da Silva in next month's election, is under investigation for alleged corruption and money laundering tied to the failed lender Banco Master. The disclosure weighed on Brazilian assets, coming as recent polls pointed to a tight race between the two candidates. Markets have tended to view Bolsonaro as the more business-friendly option.

Brazil's benchmark equity index fell 0.8%, though it remained on track for a fourth straight weekly gain. The real edged 0.3% lower and was little changed over the week.

Separately, Brazilian annual inflation slowed more than expected in August, with consumer prices recording their steepest monthly decline in four years. The reading reinforced expectations that the central bank will cut interest rates again next week. Analysts noted that the real is increasingly being driven by political developments rather than monetary policy, a shift that has supported sentiment but also compressed Brazil's risk premium and left the currency more sensitive to election-related news and polling swings.

In the United States, closely watched CPI data showed inflation accelerated in August as gasoline costs rebounded after two months of declines. The figures bolstered the case for the Federal Reserve to raise rates next week, a prospect that weighed on emerging-market assets broadly.

Oil prices eased on Friday but stayed above $100 a barrel as attacks on Middle East shipping routes raised concerns about prolonged supply disruptions. While net oil exporters in the region have benefited from elevated crude prices, worries persisted that sustained inflation could complicate central-bank policy worldwide.

Mexico and the United States are working to secure a bilateral trade deal before the US midterm elections in less than eight weeks, according to sources familiar with the talks. The push has gained urgency after Canada's negotiations with Washington collapsed. Mexico's benchmark stock index fell 0.3%, while the peso added 0.1%.

Peru's central bank held its benchmark interest rate at 4.25% on Thursday, extending its pause for a 12th consecutive meeting, in line with market expectations. The sol slipped 0.1% and Lima stocks edged 0.2% lower.

Also on Thursday, data showed Argentina's monthly inflation slowed to 1.7% in August, as easing food-price pressures extended a run of lower readings under libertarian President Javier Milei. Argentine stocks fell 1.9%, while the peso rose 0.3%.