Latin American stocks dropped, alongside lackluster trading in U.S. equities following two days of gains. Investors were cautious amid fears of monetary policy tightening, after the Brazilian central bank released hawkish minutes from last week’s meeting.
Also, the Bank of Mexico will decide this Friday, January 28, whether to tighten its monetary policy. Brazil’s benchmark Bovespa Index tumbled 500.46 points, or 2.04%, while Mexico’s benchmark Bolsa Index shed 58.65 points, or 0.45%. Argentina’s Merval Index climbed 23.11 points, or 1.71%.
Brazilian equities slumped, pressured by the likelihood of even higher interest rates.
Brazil’s central bank published the minutes of last week’s rate-setting meeting, saying it is prepared to hike the benchmark interest rate further to bring stubborn inflation expectations in line with its 2005 targets.
Analysts noted that rates at the current level of 18.25% are already too high to encourage investors to pick up shares. Economic news further spurred interest rate worries.
The Brazilian General Price Index rose 0.39% in January, down from the 0.74% in December, according to the independent Getúlio Vargas Foundation.
However, the consumer component of the IGP-M climbed 0.80%, following a 0.58% increase in the prior month, as education costs soared ahead of the start to a new school year.
Turning to the airlines group, low-cost carrier Gol Linhas Aereas Inteligentes SA confirmed its has exercised an option to buy four 737-800 Next Generation aircraft from Boeing, as announced in December.
Additionally, senior Gol executives told an aviation conference that the company is in a solid financial position to request new routes, with plans for at least four new domestic destinations and one new international route in 2005.
Maurício Fernandes, an analyst with Merrill Lynch downgraded Telesp Celular Participações to “neutral” from “buy.”
The analyst explained, “Fundamentals have substantially deteriorated since August, and because we see no signs of significant improvement on the horizon.” That stock fell in response.
Elsewhere, Mexican shares declined as investors logged profits at the last minute. Earlier, the local market advanced to a record intraday high as pension funds managers, know as Afores, resumed their investing.
Traders commented that some of the Afores were not prepared last week when the first of the pension funds made their debut on the market, which lifted the IPC to a record high.
Separately, market watchers remain divided on whether the Bank of Mexico will tighten monetary policy for the seventh straight month this Friday.
On the earnings front, conglomerate Alfa SA stated that robust demand in all its business lines and additions to its food business spurred sales and profits higher in the fourth quarter.
Alfa’s net earnings, including results from steel unit Hylsamex, which is in the process of being spun off, jumped to 1.91 billion pesos in the quarter from 16.7 million pesos the year before.
Also, Hylsamex posted a fourth-quarter net profit of 2.66 billion pesos, versus a loss of 675.8 million pesos in the year-ago period.
Shares of Mexico’s Coca-Cola Femsa SA were active, amid talk that the bottler won an injunction against a three-year old tax on products with high fructose corn syrup.
Prior to the tax, the company used HFCS to sweeten the majority of its soft drinks.
Also, Grupo TMM announced that a court has ruled that the government must include interest and inflation costs in a tax rebate claim made by the Mexican transport company’s rail unit.
Separately, Argentine stocks extended their rally, as anticipation of some pending developments in the government’s US$103 billion debt restructuring revived investor enthusiasm.
A three-week preferential period for small bondholders concludes next week, and market players are eagerly anticipating some concrete numbers.
Also, some analysts attributed the recent advance to the fact that Argentine shares remain cheap in U.S. dollars when compared to other emerging markets.
Thomson Financial Corporate Group
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