Brazilian and Latin American markets declined alongside considerable weakness in U.S. markets. Crude oil prices briefly touched US$ 60 a barrel, which could pressure the global economy and spur higher inflation in Latin America.
Interest rate news was also a focus today in Brazil and Mexico.
Brazil’s benchmark Bovespa Index plunged 862.67 points, or 3.36%, while Mexico’s benchmark Bolsa Index declined 51.99 points, or 0.39%. Argentina’s Merval Index tumbled 25.37 points, or 1.73%.
Brazilian shares tanked on disappointment surrounding the central bank’s minutes and a resumption of the rise in crude oil prices.
The central bank indicated that it will hold Brazil’s base Selic interest rate at 19.75% over the next few months, disappointing some traders who were looking for further cuts in the near term.
The central bank hopes the higher interest rate will help Brazil meet the government’s inflation targets. Meanwhile, Brazil’s National Monetary Council set the target for inflation in 2007 at 4.5% and reaffirmed 2006’s target, which is also at 4.5%.
Also pressuring domestic shares was another surge in crude oil prices, which touched US$ 60 a barrel. Brazil, a net importer of crude oil, could witness an increase in energy costs, which may consequently push up already high inflation levels.
In other economic news, the Brazilian Census Bureau, or IBGE, reported that the official jobless rate declined to 10.2% in May from 10.8% in April, marking the first decline since the December reading.
Separately, the IBGE said that inflation fell to 0.12% in the May 13 to June 13 period, down from 0.83% in the April 13 to May 12 period. The latest reading reduced the rate for the 12 months ended June 13 to 7.72% from the prior rate of 8.19%.
Turning to brokerage reports, a major investment bank upgraded beverage maker AmBev to “outperform” from “peer perform.”
The firm believes AmBev could receive greater market share and profitability as a result of the “implosion” of privately held brewer Schincariol.
Brazilian authorities allege that Schincariol and its distributors are guilty of tax evasion.
Elsewhere, a major brokerage slashed Telefonica’s 2005 earnings per shares target by more than 5% to 0.43 euros and its 2006 target by 3% to 0.52 euros.
Mexican issues continued to recede, marking the third-straight session of losses, alongside hefty declines in the U.S.
Investors are awaiting tomorrow’s local central bank policy meeting, in which hopes are high that the bank will remove the link between domestic rates and the U.S. federal funds rate. The move would signal an end to the Bank of Mexico’s tightening cycle.
In economic headlines, the country’s trade deficit narrowed sharply to US$ 52 million in May, well below the considerably larger deficit expected by economists. April’s deficit totaled US$ 632 million. Exports grew by 13.3% in May, bolstered by petroleum-related shipments.
Also, the central bank reported that the consumer price index fell 0.15% in the first two weeks of June, while core inflation, which excludes education, energy and fresh fruit and vegetables, rose 0.05%.
The tame inflation readings further spurred investor optimism that the Bank of Mexico will end its tightening cycle tomorrow.
On the corporate front, a major brokerage initiated coverage on copper mining firm Grupo Mexico with a “buy” rating, as it sees further upward momentum in the company’s share price.
Argentine shares followed the broader Latin American market into the red. Economy Minister Roberto Lavagna indicated in an interview on Radio Mitre that Argentina is ready to commence talks with the International Monetary Fund regarding a new loan accord.
Thomson Financial Corporate Group – www.thomsonfinancial.com