Brazilian and Latin American markets ended higher, yesterday, marking a sharp turnaround alongside U.S. shares. Jitters about rising U.S. interest rates and the potential for investors to bail out of emerging markets overshadowed trading for much of the session ahead of the release of U.S. FOMC minutes from the March meeting.
Also a wider-than- expected U.S. trade deficit for February was in focus. Meanwhile, oil prices declined by nearly US$ 2 a barrel, as the International Energy Agency lowered its forecast for world oil demand. Brazilian and Mexican shares jumped, while Argentine issues extended the previous day decline.
Brazil’s benchmark Bovespa Index surged 306.48 points, or 1.18%, while Mexico’s benchmark Bolsa Index advanced 96.83 points, or 0.78%. Argentina’s Merval Index tumbled 35.83 points, or 2.54%.
Minutes from the FOMC’s March meeting showed the Fed debated whether to drop the “measured pace” language in order to allow a faster pace in raising interest rates. The FOMC concluded that inflation risks were “now tilted a little to the upside.”
Rising U.S. inflation makes riskier emerging market shares less attractive to investors. Still, traders were bullish on the report, as a steep ramp-up in inflation and interest-rate hikes is not expected in the near term.
Meanwhile, the U.S. trade deficit widened to a record US$ 61.04 billion in February from an upwardly revised US$ 58.50 billion the prior month. February’s reading was higher than economists had anticipated.
Still, cushioning the report was the fact that the deficit with China narrowed, whereas analysts had expected a wider deficit after textile quotas were removed.
Brazilian issues again moved higher in the latter half of the session, following a similar pattern as Monday. Traders were encouraged by the U.S. FOMC minutes, as U.S. inflation and interest rate policy appear to be in line with expectations. Brazilian shares were also encouraged by a steep decline in crude oil prices, as the region imports oil.
Still, local inflation rates were also on traders’ minds. São Paulo’s Fipe research institute announced that consumer prices rose 0.98% in the four weeks ended April 7, at the upper end of analyst predictions, and up from 0.79% in the preceding month.
The higher reading was spurred by increases in transport prices. Rising inflation could provoke another interest rate hike in April, following seven-straight monthly increases.
The aviation group was also in focus today. According to the Civil Aviation Department, Brazil’s Gol Linhas Aereas Inteligentes and TAM Linhas Aereas SA gained further market share in February from Varig, which has experienced financial difficulties since 2001.
Gol’s domestic market share rose to 26.1% in March from 24.1% in February. Also, Tam’s market share of international flights rose to 16.3% in March from 15.8% in February, while its domestic share was little changed. Meanwhile, Varig’s March market share slipped to 29.9% from 31.4% the prior month.
Elsewhere, Telecom Italia SpA’s chairman said the firm is ready to regain control of Brasil Telecom. Telecom Italia currently owns 18% of the firm with the right to buy back the 19% it sold to Banco Opportunity.
Mexican shares followed Brazil and the U.S. higher in a late-day turnaround. Trading had been lower for much of the session, as political uncertainty is expected to remain following the impeachment of Mexico City’s mayor.
In corporate reports, Mexicana de Aviacion, a unit of Cintra SA, announced that its no-frills carrier Click should begin operations in July. The firm said that Click will initially service nine routes to and from Mexico City at a 30% discount to current ticket prices. Shares of Cintra SA jumped.
Grupo Mexico SA, the world’s third-largest copper producer, announced the proposition of a three-for-one stock split. The split will be proposed at a shareholders meeting on April 29. Under the terms of the deal, the firm’s 865 million class B shares would we swapped for 2.6 million new class B shares.
Meanwhile, Argentine issues continued their descent on debt-restructuring concerns. Earlier in the session, an official from the Group of 7 said that a draft statement from the group is in circulation, and it asks Argentina to remember the non-participating creditors. Economy Minister Roberto Lavagna will meet with the G7 and IMF later this week.
Thomson Financial Corporate Group