Von der Leyen Triggers EU-Mercosur Provisional Application; Milei’s Labor Reform Clears Senate as PCE Shock Hammers Global Markets
Executive Summary
The Big Picture: European Commission President Ursula von der Leyen announced on Friday that the EU will proceed with provisional application of the EU-Mercosur free trade agreement—the most consequential trade development for Latin America in a generation. The move, triggered by Uruguay and Argentina completing ratification on Thursday, activates trade provisions for a zone of 720 million consumers and over 30% of global GDP before the European Parliament has given final consent. France’s Macron called it “a bad surprise”; 171 civil society organizations denounced it as a “democratic scandal.” But von der Leyen framed it as essential to European strategic autonomy in an era of Trump tariffs and Chinese export restrictions. The deal eliminates tariffs on over 90% of bilateral trade—billions in duties—and gives Mercosur nations a structural counterweight to U.S. protectionism at precisely the moment they need one most.
Argentina’s Senate gave final approval to President Milei’s landmark labor reform on Friday night, voting 42–28 with two abstentions after a marathon session. Police deployed water cannons, tear gas, and rubber bullets against thousands of protesters outside Congress. The CGT has pledged to challenge the law in court. The MERVAL plunged 4.08% to 2,642,105—now down roughly 19% from its January all-time high—on combined sell-the-news dynamics and a global risk-off rout. Milei will showcase the reform and the EU-Mercosur deal in his Sunday state-of-the-nation address.
A hot U.S. inflation print drove a global selloff on Friday. The core PCE price index surged 0.5% in January versus 0.2% expected, pushing the annual rate to 3.1% and shattering the “soft landing” narrative. The S&P 500 fell 0.43% to 6,878.88; the Dow dropped 1.05%. The selloff cascaded across Latin American equities: Brazil’s Ibovespa fell 1.16%, Colombia’s COLCAP dropped 2.67%, Chile’s IPSA lost 1.56%. Gold surged to $5,274 (+1.74%); silver exploded 6.23%. Block’s announcement of 4,000+ layoffs—half its workforce—on AI disruption added to tech anxiety. The Fed’s “higher for longer” scenario is firmly back.
Cuba’s existential crisis deepened. CNN en Español published a major analysis calling it “the mother of all crises,” with economists warning of potential economic paralysis within weeks. Cuba has received no oil in 2026. The U.S. Treasury issued a license on February 25 allowing Venezuelan oil resale to Cuba’s private sector—a pressure-relief valve far short of restoring supply. Nicaragua cancelled visa-free Cuban travel. Guatemala terminated its medical cooperation program. In Colombia, President Petro signed a petition sheet backing a constituent assembly push—a significant escalation of his political agenda eight days before congressional elections.
Regional Mood
The week ends with a structural shift. Von der Leyen’s decision to trigger EU-Mercosur provisional application—defying the European Parliament’s judicial review and France’s opposition—transforms the trade architecture of the Western Hemisphere. Coming as Trump’s Section 122 tariffs bite and U.S.-China trade tensions escalate, Mercosur now has an activated European alternative. Argentina’s labor reform passage caps a remarkable legislative week for Milei, giving him both historic domestic reform and an international trade pact to showcase on Sunday. But the hot U.S. PCE print has reintroduced global inflation anxiety, hammering LatAm equities across the board. Cuba’s accelerating collapse, Petro’s constituent assembly gambit before March 8 elections, and Minas Gerais floods add humanitarian and political urgency. March opens with Milei’s address Sunday, Trump hosting LatAm leaders March 7, Colombia’s elections March 8, and Kast’s inauguration March 11.
Risk Snapshot
| Country | Risk Level | Key Driver |
|---|---|---|
| Argentina | ELEVATED | Labor reform PASSED 42–28; EU-Mercosur ratified (triggering provisional application); MERVAL −4.08%; Milei address Sunday |
| Brazil | ELEVATED | EU-Mercosur deal advancing to Senate; Minas Gerais floods: 54 dead; Marielle convictions; Lula vetoed Bolsonaro sentence reduction; Ibovespa −1.16% |
| Cuba | CRITICAL | CNN calls it “mother of all crises”; zero oil received in 2026; US license for private-sector resale; Nicaragua blocks Cuban travel; speedboat fallout |
| Mexico | MODERATE | 40-hour workweek approved (goes to state legislatures); El Mencho Day 8 stabilization; IPC flat near ATH; World Cup 4 months out |
| Colombia | MODERATE | COLCAP −2.67% (second straight sharp decline); Petro constituent assembly push 8 days before Mar 8 elections; floods across 22 departments |
| Peru | ELEVATED | PM Miralles in office; 700+ districts under emergency; SENAMHI warns rain returns Mar 5–6; Apr 12 election |
| Venezuela | ELEVATED | US license for private-sector oil resale to Cuba; 545 prisoners freed; IMF warns economy “quite fragile” |
| Chile | STABLE | IPSA −1.56%; Kast inauguration Mar 11; orderly consolidation from highs |
Argentina
What Happened
- —Labor Reform Becomes Law: Argentina’s Senate gave final approval to Milei’s landmark labor reform on Friday night, voting 42–28 with two abstentions. The 218-article bill—which grants employers greater flexibility in hiring, firing, severance, and collective bargaining while restricting the right to strike—now heads to Milei for signature and publication in the Official Gazette. Bloomberg called it one of Milei’s “most significant legislative wins.” The bill cleared the Deputies 135–115 on February 20 and the Senate 42–30 on February 12, returning for final ratification after the Deputies stripped Article 44. The Senate also advanced a bill lowering the age of criminal responsibility from 16 to 14.
- —Violent Protests at Congress: Thousands of demonstrators mobilized by the CGT, both CTA labor groupings, and leftist organizations marched on Congress from 11:00 AM Friday. As the session extended into the evening, police deployed water cannons, tear gas, and rubber bullets against protesters who hurled petrol bombs, stones, and bottles. Reuters reported the scene included demonstrators holding flags against the water cannons. Multiple injuries were reported. The U.S. Embassy had issued a demonstration alert on February 26 warning of “heightened tensions and possible violence.”
- —Union Court Challenge Imminent: The CGT has declared the law unconstitutional and pledged to challenge it in court immediately upon enactment. The International Trade Union Confederation described the reforms as an “attack on democracy.” Previous reform attempts collapsed in 1984 (one Senate vote), 2000 (vote-buying scandal), and 2017 (union pushback). Milei’s 2023 executive order attempt was blocked by court injunctions—this time the legislative route provides stronger legal standing.
- —EU-Mercosur Ratified: Argentina’s Congress ratified the EU-Mercosur free trade agreement on Thursday, simultaneously with Uruguay—becoming the first two Mercosur members to complete the legislative process. Their ratification triggered von der Leyen’s Friday announcement of provisional application, activating trade provisions for a zone of 720 million consumers. Brazil’s Chamber approved on Wednesday; the Senate is expected shortly. France’s Macron called the EU’s move “a bad surprise”; 171 civil society organizations denounced it as a “democratic scandal.” The deal eliminates tariffs on over 90% of bilateral trade.
- —Markets: The MERVAL plunged 4.08% Friday to 2,642,105—now down approximately 19% from its January 28 all-time high of 3,258,737. RSI at 33 signals deeply oversold territory. The selloff reflected the combined impact of the global PCE-driven rout and sell-the-news dynamics around the reform’s passage.
Why It Matters
This is the most significant labor reform in Argentina’s modern history. No president—not AlfonsÃn, not Menem, not Macri—has managed to push through a comprehensive overhaul of the Peronist-era labor code through both chambers of Congress. For international investors, passage signals that Milei has the political capital and congressional coalition to advance structural reforms. The IMF has long demanded labor market flexibility as a condition for sustained engagement. Argentina’s 40% informal employment rate—with private formal job growth stagnant for 14 years—is the structural problem the reform aims to address.
Argentina’s simultaneous ratification of the EU-Mercosur deal—alongside Uruguay on Thursday, triggering von der Leyen’s provisional application announcement on Friday—caps a remarkable legislative week for Milei. He now enters Sunday’s state-of-the-nation address with both a historic domestic reform and an international trade pact that creates a 720-million-consumer free trade zone. The CGT’s court challenge introduces implementation uncertainty on labor, but the broader trajectory is unmistakable: Milei is reshaping Argentina’s structural position faster than any president since Menem.
Key Watch
Milei’s March 1 state-of-the-nation address: framing and next legislative priorities. CGT court challenge filing timeline and which courts receive the cases. Whether MERVAL finds a floor in deeply oversold territory or selling accelerates. Implementation timeline for key provisions. Trump–Milei meeting at Miami summit on March 7.
Risk Level: ELEVATED
Brazil
What Happened
- —EU-Mercosur Advances to Senate: Brazil’s Chamber of Deputies approved the EU-Mercosur free trade agreement on Wednesday, sending it to the Senate. Von der Leyen’s Friday announcement of provisional application—triggered by Uruguay and Argentina’s Thursday ratifications—puts pressure on the Brazilian Senate to act quickly. The deal eliminates tariffs on over 90% of bilateral trade and creates a market of 720 million consumers. Brazil and Paraguay are expected to complete ratification within weeks. Annual EU-Mercosur trade already exceeds €110 billion.
- —Minas Gerais Floods Worsen: The death toll from catastrophic flooding in Minas Gerais rose to 54 on Friday, with 14 people still missing and 238 rescued. Juiz de Fora accounts for the majority of fatalities. Nearly 2,600 people have been displaced. The city’s mayor told UOL the city was “devastated” and she had no way to rebuild. A new storm drenched Juiz de Fora on Wednesday night, hampering search efforts. Lula’s government declared a state of public calamity and released R$3.4 million ($660,000) in emergency funds—a figure already drawing criticism as inadequate.
- —Marielle Franco Verdict / Bolsonaro Veto: The Supreme Court this week convicted five people—including police chief Rivaldo Barbosa and politicians Chiquinho and Domingos Brazão—for the 2018 assassination of Rio councilwoman Marielle Franco. Separately, Lula vetoed a bill that would have reduced former President Bolsonaro’s prison sentence over the 2022–2023 coup plot from 27 years to two. Both developments sharpen the political stakes ahead of October’s election, where polls show a statistical dead heat between Lula and Flávio Bolsonaro.
- —Markets: The Ibovespa fell 1.16% Friday to 188,787—its sharpest single-session decline in weeks—dragged by the U.S. PCE shock and month-end rebalancing. February closes with a roughly 0.9% monthly loss, snapping a six-month winning streak. USD/BRL at 5.1300 (−0.14%), still near its lowest since May 2024. Foreign inflows remain positive at R$33B+ YTD but pension fund rebalancing weighed on the final session.
Why It Matters
The Minas Gerais disaster evokes memories of Rio Grande do Sul in May 2024 (185 dead, R$10 billion in losses). The R$3.4 million emergency release is a fraction of what will be needed—Juiz de Fora’s infrastructure was devastated. Lula’s emergency response capacity will be measured against election-year expectations. With eight months until the first round, every government action is now filtered through the campaign lens.
The hot U.S. PCE print poses a medium-term risk to Brazil’s equity rally. If the Fed is forced to hold rates longer or signal hawkishness, the dollar strengthens and EM capital flows reverse. Brazil’s insulation—bank- and commodity-heavy index, high carry trade returns at 15% Selic—provides a buffer, but not immunity. The Ibovespa’s February loss, while modest, breaks the momentum that had driven the index to 13 record closes in 2026.
Key Watch
Minas Gerais death toll trajectory and whether additional storms hit. Haddad successor announcement timeline. BCB March 17–18 Copom decision signaling in light of U.S. inflation surprise. Whether foreign inflows absorb the monthly rebalancing selling. Marielle Franco verdict political impact.
Risk Level: ELEVATED
Mexico
What Happened
- —40-Hour Workweek Approved: Mexico’s Chamber of Deputies gave final approval early Wednesday to a constitutional reform reducing the standard workweek from 48 to 40 hours, voting 411–58 after nearly 10 hours of debate. The Senate had already approved unanimously. The reform—championed by President Sheinbaum—phases in two-hour annual reductions starting January 2027, reaching 40 hours by 2030. It now goes to state legislatures for ratification, where Morena holds commanding majorities. The government estimates 13.5 million workers will benefit; analysts say the real figure could be double. Mexico currently leads all OECD nations in working hours (2,226 per person annually) while ranking last in labor productivity. The passage came the same week Argentina moved in the opposite direction with labor deregulation—a striking ideological divergence.
- —Post-El Mencho Stabilization—Day 8: One week after the killing of CJNG leader Nemesio Oseguera Cervantes, public order in Guadalajara and Jalisco remains restored. Schools, airports, and services are fully operational. No major retaliatory incidents. The Wilson Center warned of fragmentation risk as succession remains unclear: “El Menchito” is jailed in the U.S.; stepson “El Pelón” is the de facto second-in-command. The World Cup—four months out with Guadalajara as a host city—concentrates the security imperative.
- —Oil and Geopolitics: Mexico halted petroleum shipments to Cuba under U.S. pressure. Rising Iran tensions pushed oil prices up $1.31 on Friday to $66.81. The IPC was essentially flat at 71,406 (+0.02%)—the only LatAm index to hold during the global selloff, shielded by USMCA tariff exemptions.
Why It Matters
The 40-hour workweek reform is Sheinbaum’s most significant domestic policy achievement to date, and its passage the same week Argentina approved labor deregulation creates one of the sharpest ideological contrasts in contemporary Latin American politics. Mexico is expanding worker protections; Argentina is dismantling them. Both claim economic modernization as the justification. The EU-Mercosur deal’s provisional activation adds a third dimension: how trade liberalization interacts with domestic labor standards will define competitiveness debates across the region for years.
The IPC’s resilience—flat while every other LatAm index fell sharply—underscores Mexico’s unique positioning. USMCA tariff exemptions, stable energy revenues, and the post-El Mencho “state authority restored” narrative are all providing support. But the fragmentation warning echoes every major cartel decapitation in Mexican history: short-term stabilization gives way to medium-term realignment. The World Cup timeline—four months out—concentrates the security imperative.
Key Watch
State legislature ratification of 40-hour workweek (Morena majorities make passage likely). Business community response and labor cost projections. CJNG fragmentation dynamics and whether succession produces splinter groups. FIFA World Cup security assessment timeline. Iran–U.S. escalation impact on oil prices and Mexican revenues.
Risk Level: MODERATE
Regional Snapshot
Cuba
CNN en Español published a major analysis on Friday calling the situation “the mother of all crises,” with economist Pavel Vidal warning of potential economic paralysis “within weeks.” Cuba has received no oil in 2026. DÃaz-Canel confirmed the country is without petroleum deliveries. The U.S. Treasury on February 25 issued a license allowing companies to resell Venezuelan oil to Cuba’s private sector—a pressure-relief valve that falls far short of restoring supply. Mexico halted petroleum shipments under Washington’s pressure. Nicaragua cancelled visa-free Cuban travel. Guatemala terminated its medical cooperation program. The speedboat shootout of February 25—in which Cuban border forces killed four and wounded six—continues to reverberate. Russia said the “situation around Cuba is escalating.” The Nuestra América Flotilla targets Havana on March 21. Energy deficit exceeds 1,700 MW. Blackouts past 20 hours daily.
Peru
PM Denisse Miralles continues in office after President Balcázar’s last-minute reversal of the Hernando de Soto appointment. More than 700 districts remain under emergency declarations due to El Niño Costero flooding. SENAMHI forecasts a short break in heavy rains after February 27 but warns intense rainfall may return March 5–6. ENFEN reports the coastal El Niño pattern could persist through November 2026. The general election is set for April 12. Extortion protests continue across multiple regions.
Venezuela
The U.S. Treasury on February 25 issued a general license allowing companies to resell Venezuelan oil to Cuba’s private sector “for use supporting the Cuban people, including the private sector.” Acting President Delcy RodrÃguez’s amnesty law has freed 545 of 800+ political prisoners. The IMF warned the economy is “quite fragile” with triple-digit inflation and 180% debt-to-GDP. Oil reform legislation advancing in the legislature aims to attract international investment. The Supreme Court convicted Maduro-era officials this week in the Marielle Franco case.
Colombia
President Petro formally signed a constituent assembly petition sheet on Tuesday at a Cabinet meeting livestreamed on social media—”I want to put the first signature,” he said—eleven days before March 8 congressional elections. The initiative needs 2 million citizen signatures (5% of the voter roll) within six months. Petro has outlined nine thematic areas including pension, healthcare, judicial reform, and implementation of the 2016 FARC peace accords. Critics call it electoral manipulation designed to boost left-wing candidates. The COLCAP fell 2.67% Friday to 2,223—its second consecutive sharp session decline after Thursday’s 4.13% plunge—now in bearish RSI territory at 36. Flooding continues across 22 departments affecting 251,000+ people. The Ecuador trade war continues with reciprocal 30% tariffs.
Chile
The IPSA fell 1.56% Friday to 10,878—caught in the global PCE-driven selloff—its sharpest single-session decline in weeks. RSI at 44 suggests neutral-to-bearish momentum after the pullback from February highs. Kast inauguration remains on track for March 11. The Communist Party announced it will boycott the inauguration in protest of Kast’s positive comments on the U.S. Venezuela operation. Chile remains one of Latin America’s top-performing equity markets over three months despite the consolidation.
Global Context
The January core PCE price index surged 0.5% (vs 0.2% expected), pushing annual core inflation to 3.1%—shattering the “soft landing” narrative. The S&P 500 fell 0.43% to 6,878.88; the Dow dropped 1.05% (−521 pts); Nasdaq lost 0.92%. All three indices finished February in the red—S&P 500 −0.86%, Nasdaq −3.3%. Block announced 4,000+ layoffs (half its workforce) on AI disruption. Gold surged to $5,274 (+1.74%); silver exploded 6.23% to $93.76. Bitcoin fell 2.86% to $63,986. Oil rose $1.31 on Iran tensions. The U.S. embassy in Jerusalem told staff they could leave. The Fed’s “higher for longer” scenario is now firmly back on the table.
Markets at a Glance
| Index | Close | Change | Session |
|---|---|---|---|
| Ibovespa (B3) | 188,786.98 | −1.16% | (Fri) |
| USD/BRL | 5.1300 | −0.14% | (Fri) |
| MERVAL (BYMA) | 2,642,105 | −4.08% | (Fri) |
| IPC (BMV) | 71,405.77 | +0.02% | (Fri) |
| COLCAP (BVC) | 2,222.92 | −2.67% | (Fri) |
| IPSA (Santiago) | 10,877.74 | −1.56% | (Fri) |
| S&P 500 | 6,878.88 | −0.43% | (Fri) |
| Gold (XAU/USD) | 5,274.19 | +1.74% | (Fri) |
| Silver (XAG/USD) | 93.755 | +6.23% | (Fri) |
| Bitcoin (BTC/USD) | 63,986 | −2.86% | (Fri) |
Market Note
The hot U.S. PCE print drove a broad LatAm selloff on Friday. Argentina’s MERVAL led losses at −4.08%, combining global risk-off with sell-the-news dynamics after the labor reform vote. Colombia’s COLCAP dropped 2.67%—its second consecutive sharp decline—now in bearish RSI territory at 36. Chile’s IPSA lost 1.56%, its worst session in weeks. Brazil’s Ibovespa fell 1.16%, ending February’s winning streak. Mexico’s IPC was the sole holdout, essentially flat (+0.02%), shielded by USMCA tariff exemptions. Gold and silver surged as safe-haven demand intensified—silver’s 6.23% single-session gain reflects both inflation hedging and Iran escalation concerns. Bitcoin fell 2.86%, decoupling from gold in the risk-off environment.
The Week Ahead
| Date | Event | Significance |
|---|---|---|
| Mar 1 | Milei state-of-the-nation address | Opens ordinary congressional session; labor reform victory framing; 2026 policy agenda |
| Mar 5–6 | Peru: SENAMHI warns intense rainfall returns | 700+ districts already under emergency; El Niño Costero through Nov |
| Mar 7 | Trump hosts LatAm leaders (Miami) | Argentina, Paraguay, Bolivia, Ecuador, El Salvador, Honduras |
| Mar 8 | Colombia congressional elections | First electoral test of Petro era; Senate and Chamber races |
| Mar 11 | Kast inauguration (Chile) | Cabinet composition; migration and security policy; Communist Party boycotts |
| Mar 17–18 | BCB Copom rate decision (Brazil) | Selic at 15%; U.S. PCE shock complicates easing signals |
| Mar 21 | Nuestra América Flotilla targets Havana | Exile maritime protest; escalation risk after speedboat shootout |
| Apr 12 | Peru general elections | Presidential and congressional vote under interim government |
| Late Jul | Section 122 tariffs expire | 150-day limit; Congress must act to extend or replace |