Expectations for inflation and interest rates in Brazil have shifted up on the back of Lula’s fiscal plans, but an equally (if not more) concerning development on this front is the surge in wage growth. This could force the central bank to keep monetary policy tighter for longer. Elsewhere, the announcement by Argentina's government that it will buy back some of its external FX debt has sparked a rally in the country’s sovereign dollar bonds. But the bigger picture is Argentina’s public debt burden looks unsustainable and another sovereign default is likely.
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