U.S. Consumer Price Hike Depresses Brazil Market

Brazilian and Latin American equities gave back most of the gains earned yesterday. A higher-than-expected rise in the U.S. core CPI reading erased yesterday’s relatively benign PPI report, and stoked fears of a faster-than-expected rise in U.S. interest rates.

Brazilian shares reacted negatively to the news ahead of the country’s own potential rate hike after the close. Brazilian markets will be closed for a holiday tomorrow to commemorate Tiradentes, a national hero.

Mexican receipts returned yesterday’s gains ahead of some major financial releases due out after the close. Meanwhile, Argentine stocks also contributed to Latin American declines.

Brazil’s benchmark Bovespa Index slumped 503.73 points, or 1.97%, while Mexico’s benchmark Bolsa Index negated 168.81 points, or 1.41%. Argentina’s Merval Index receded 35.13 points, or 2.61%.

In U.S. economic reports, the Consumer Price Index rose 0.6% in March, while the core index climbed 0.4%. Economists had expected a 0.5% increase in the overall index and a 0.2% gain in the core CPI.

Also, the U.S. Federal Reserve’s “beige book” indicated that higher energy costs led to price pressures on firms between late February and early April, with some companies passing those costs on to customers, thereby possibly adding to inflationary pressures.

Brazilian issues returned the bulk of the gains earned yesterday ahead of a possible interest-rate hike after the close. Most economists expect the base Selic rate to remain unchanged at 19.25%, although some still see a hike, which would be the eighth-straight increase.

Meanwhile, the surprisingly high U.S. CPI readings sparked interest rate hike concerns. U.S. rate tightening can dissuade foreign investors from buying emerging market issues.

In major deal news, engineering firm Camargo-Correa is set to buy Argentinean cement maker Loma Negra for US$ 1.025 billion, pending approval from regulators.

Within the telecom group, Brasil Telecom Participações said that its first-quarter net profit plunged by over 39% to 45.1 million reals from the corresponding period last year in which it earned 74.3 million reals.

EBITDA, meanwhile, fell to 824 million reals from 892 million reals. Increased operating costs outweighed a rise in revenue to 2.447 billion reals.

Turning to research notes, a major investment house downgraded mobile phone firm Telesp Celular Participações to “equal-weight” from “overweight,” due to heightened competition in the region’s wireless industry.

Mexican receipts also receded, following weakness in the U.S. markets on inflation concerns. In major corporate reports, airport operator Asur said that passenger traffic at its airports jumped 11.6% in the first quarter. Also, conglomerate Alfa and its steel unit Hylsamex were active ahead of their financial releases, due out after the close.

Argentina’s market followed broader Latin American receipts lower. A U.S. federal appeals court is set to hold its hearing next Wednesday on US$ 7 billion in defaulted securities related to the regions debt swap.

However, a ruling may not be given right away, and a final resolution could be delayed until May or later.

Separately, Argentine Central Bank President Martin Redrado told a Senate budget committee that inflation targets for 2005 should not be adjusted, despite rising consumer prices. The CPI rose to an annualized rate of 9.1% in March, but Redrado expects prices to stabilize in April.

Elsewhere in Latin America, after nearly a week of protests in Ecuador, President Lucio Guitierrez was removed from office by Congress and replaced by Vice President Alfredo Palacio, according to local reports. Protests against Guitierrez intensified after he replaced Supreme Court justices.

Thomson Financial Corporate Group



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