Brazilian equities declined further, pressured by interest rate fears and additional profit taking. Brazil’s market suffered from concerns over interest rate hikes at home and abroad with the U.S. earnings season getting underway this week.
Brazil’s benchmark Bovespa Index dropped 455.33 points, or 1.84%. Brazilian shares plunged, amid projections for local and foreign interest rate tightening.
The latest declines follow a slump last week after U.S. Federal Reserve officials sent out warning signals related to potential rising inflation in the U.S.
Some analysts believe that Brazil’s central bank will have difficulty easing monetary policy this year amid a rate-tightening environment overseas, with the bank having boosted rates by 1.75 percentage points since September to limit accelerated core inflation.
On that front, a Brazilian central bank market survey released early today suggested it would likely be forced to hike the benchmark Selic interest rate by up to half a point to 18.25% annually at its January meeting. Previous surveys had forecast a quarter-point increase.
Turning to research notes, a major investment bank cut its rating on Brazilian phone company Embratel Participações SA to “underweight” from “neutral,” calling the fundamental outlook poor despite the recent takeover by Mexico’s Telmex.
The bank commented that despite initial expectations, there are now “strong indications” that Telmex will not make an offer for Embratel’s preferred shares and American Depositary Receipts anytime soon, which “removes the single biggest potential catalyst we saw for Embratel shares.” Embratel’s stock tumbled.
Thomson Financial Corporate Group
www.thomsonfinancial.com