Mexican assets rally on midterm election results; Peru markets pressured

Mexico's peso jumped 1% on Monday as early results of midterm elections showed a reduced majority for the ruling party, while Peruvian assets made small moves as a tightly fought presidential election remained too close to call.

Peru's sol currency was down 0.1% at 3.84, while its stock index tumbled 5.7%, on track for its worst session in seven weeks.

The final result may not be known for days, but Peru's currency and bonds have suffered since left-wing candidate Pedro Castillo scored a surprise first-round win back in April on promises of more state control of the country's mining, energy and telecoms industries. Castillo and his rival, right-wing candidate Keiko Fujimori, are neck and neck in the unofficial count.

"If Castillo is confirmed as president-elect, we believe the central bank would be tested under regime change, likely facing capital flight following the election outcome," JPMorgan said in a research note.

Mexico's peso hit a four-week high and was set for its best session since mid-May, while the Ipc stocks index jumped almost 2%, hitting 2017 highs.

Assuaging fears, President Andres Manuel Lopez Obrador's MORENA party lost some of its majority, the weekend vote showed, which would have allowed him to push through more wide sweeping changes to market friendly policies.

Monday's gains helped the peso wipe away its losses this year and move up 0.6%.

Brazil's real slumped after one of its best weeks this year, down 0.5%.

Forecasts for Brazil's growth and inflation in 2021 rose to new highs, a survey of economists showed on Monday, with inflation moving further above the upper limit of the central bank's target range for the year. But despite the ninth consecutive rise in the inflation outlook, economists' view on interest rates was unchanged.

Chile's peso rose 0.3% despite falling prices of its biggest export, copper. The central bank on Monday said Chile posted a trade surplus of $1.314 billion in May, as the value of copper exports surged.

"Market pricing of Latam rate curves foretells tighter monetary policy settings over the next year. ... The state of inflation will also be notably different in a year's time, thanks in large part to base effects," said Sacha Tihanyi, head of emerging markets strategy at TD Securities.

"We see the benefits of these shifts substantially accruing to BRL, and to a lesser degree, MXN. On the flip-side COP will encounter difficulties, but CLP in particular will face very challenging headwinds, even more so considering current valuations."