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Political Instability and Oil Prices Put Brazil in the Red

Latin American markets continued to decline, as both Brazil and Mexico came under pressure. Argentina, however, rebounded. U.S. market weakness was partly to blame for LatAm weakness due to oil prices slower economy.

Record crude oil prices, which surpassed US$ 67 a barrel, dampened global economic sentiment. Weaker-than-expected U.S. durable goods orders also pressured the U.S.


Brazil’s benchmark Bovespa Index receded 56.90 points, or 0.21%, while Mexico’s benchmark Bolsa Index tumbled 114.91 points, or 0.78%. Argentina’s Merval Index recovered 10.17 points, or 0.67%.


On the U.S. economic front, durable goods orders sank a greater-than-expected 4.9% in July, after rising a downwardly revised 1.9% in June. Also, new home sales rose to an annual rate of 1.410 million in July from a downwardly revised 1.324 million the prior month, versus the expected decline to 1.332 million.


Brazilian issues weaved in and out of positive territory today, but ultimately finished lower. Surveying institute Ibope released new poll results that indicate President Luiz Inácio Lula da Silva will lose next year’s election to São Paulo Mayor José Serra.


The approval rating of President Lula’s administration declined to 45% in August from 54% in July. Investors are also awaiting congressional testimony, tentatively set for tomorrow, from Finance Minister Antonio Palocci’s ex-aide regarding allegations that Palocci accepted kickbacks in the 1990s.


Meanwhile, oil prices moved above US$ 67 a barrel, a negative for Brazil, which is a net importer of oil. The U.S. Energy Department showed a larger-than-expected decline in weekly gasoline inventories. There were also some concerns that tropical storms might threaten oil production in the Gulf of Mexico region.


In other commodity news, the Brazilian Steel Institute reported that steel production declined 12.5% in July to 2.48 million metric tons from 2.84 million a year ago. Maintenance shutdowns, towering interest rates and high stocks at distributors were blamed for the decline.


Mexican shares fell sharply, alongside a steep decline in U.S. stocks. Nearly 90% of Mexican exports are received by the U.S. Also, although Mexico is a net exporter of oil, surging crude prices can hamper U.S. and global economic growth, which in turn could negatively impact Mexico’s key export market.


On the economic front, the Bank of Mexico reported that the Consumer Price Index advanced only 0.07% in early August from the end of July, due to lower agricultural prices. Separately, the National Statistics Institute, or INEGI, said that retail sales rose 6% in June from a year ago, although, after seasonal adjustments, the most recent figure declined slightly from May of this year. For the first half of the year, retail sales are up 5.5%.


Meanwhile, amid the ongoing steel negotiations and strikes in the region, steel workers from the Sicartsa plant in Michoacon state appealed to President Vicente Fox to step in and revive talks related to an ongoing strike.


Argentine stocks were positive, amid broad regional declines. Economy Minister Roberto Lavagna and Mendoza Gov. Julio Cobo signed three loan accords for US$121 million with the Inter-American Development Bank to develop tourism and production.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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