Emerging Markets-Brazil’s Real, Stocks Slide after Budget Proposal; Other EM Currencies Weak

After sliding as much as 2.3% against the dollar, the real was last down 0.2%, while the Bovespa stock index dropped 1.5% after the incoming Lula administration proposed guidelines for a constitutional amendment to exempt some 175 billion reais ($32.41 billion) from next year's budget to pay for social programs.

Market (participants) are worried that the Lula government will engage in various activities to breach the spending cap, which would lead to more fiscal expansion, potentially more inflation and mean that the Banco Central do Brasil would come under additional hiking pressure," said Rachel Ziemba, founder of Ziemba Insights.

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