Latin American equities tumbled, paced by a fall in Brazil’s market, as investors reacted to an as-expected interest rate hike yesterday by the country’s central bank.
In the U.S., stocks dragged, as disappointing corporate outlooks fueled concerns that earnings growth could slow more than expected, and weaker-than-forecast manufacturing data also weighed on sentiment.
Brazil’s benchmark Bovespa Index plunged 661.26 points, or 2.72%, while Mexico’s benchmark Bolsa Index fell 265.82 points, or 2.04%. Argentina’s Merval Index declined 17.77 points, or 1.33%.
Brazilian receipts tanked, on fears that Brazil’s Central Bank may continue to hike interest rates in February and March following its fifth monthly increase Wednesday.
After yesterday’s market close, the Central Bank raised the benchmark Selic rate by 50 basis points to 18.25% in an attempt to limit inflation.
“Continuing with the process of adjusting basic interest rates that started in September 2004, Copom decided, unanimously, to raise the Selic rate to 18.25% per year without any bias [for future policy],” the bank’s monetary policy committee remarked.
Analysts noted that higher interest rates limit economic growth and increase financing costs, which should be reflected in corporate profits.
In corporate news, aircraft manufacturer Embraer reported that it has sold 16 of its Embraer-170 passenger jets to Republic Airways of the U.S. Embraer added that Republic also placed 34 options for the Embraer-170 model.
Also, No. 2 Brazilian bank Banco Itaú SA was active, after completing a 36-month overseas bond issue totaling US$125 million yesterday.
Initially, Itaú had planning to place just US$50 million, but robust demand lifted the issue higher, according to a bank spokesman.
Thomson Financial Corporate Group