Lulas’s Plan to Reshuffle Cabinet Brings Good Tides to Brazil Market

Latin American stocks returned to positive territory. Brazil recovered from yesterday’s decline, in what has so far been a roller coaster week for the key Bovespa Index.

As widely expected, the Brazilian central bank held interest rates steady at 19.75% a year. Mexican and Argentina tallied more modest gains.


Brazil’s benchmark Bovespa Index surged 269.15 points, or 1.06%, while Mexico’s benchmark Bolsa Index jumped 35.77 points, or 0.26%. Argentina’s Merval Index rose 5.04 points, or 0.35%.


Brazilian issues bounced back today, after the central bank left its base Selic interest rate unchanged at 19.75%, ending nine consecutive months of rate hikes.


Among some of the factors that likely led to the rate freeze was the recent IPCA Broad Consumer Price Index reading for May, which came in below market expectations.


Turning to corporate reports, CBD (Companhia Brasileira de Distribuição – Brazilian Company of Distribution) announced last night that its nominal same-store sales rose only 2.5% in May year-over-year.


Brazil’s largest grocer cited a slowdown in the economy and one less Saturday last month, compared with May 2004, for the meager growth figure. Total gross sales for May rose 3% to 1.291 billion reais, while net sales gained 4.4% to 1.073 billion reais, compared to a year earlier.


On the political front, according to the Agência Estado news agency, Brazil’s Education Minister Tarso Genro said that President Luiz Inácio Lula da Silva is planning to announce an overhaul of his cabinet within the next several days.


Mexican shares built on yesterday’s rally, in which the key IPC index reached its highest level in approximately three months.


In corporate news, America Movil unit Sercotel said that it plans to launch its mobile phone service in Peru by the end of this year.


The firm won a 20-year license for a mobile telephone band from ProInversion, a government privatization agency, this past March.


Argentine receipts posted modest gains. Traders were focusing on the expiration of options contracts, which are expected to continue into early next week.


Topping economic headlines, Indec, the national statistics agency, said that preliminary gross domestic product data for the first quarter showed growth of 8.0%, compared to the year-earlier period.


The reading was slightly below market expectations and showed a slowdown from the fourth-quarter’s 9.3% expansion on a year-over-year basis. The fourth-quarter results were upwardly revised from a prior 9.1% reading.


Indec also reported that industrial output rose 8.5% in May from the year- earlier period, well above analyst expectations. Industrial production rose 1.2% in May from April.


Meanwhile, the president of the Buenos Aires Stock Exchange, Adelmo Gabbi, said that he is “optimistic” that President Nestor Kirchner will do something to mitigate the negative effect on domestic stocks created by the recent one- year freeze on 30% of incoming foreign capital.


In corporate reports, Argentina’s auto mechanics union reached a wage agreement with the local division of Volkswagen last night. Earlier yesterday, the union reached agreements with Ford and DaimlerChrysler.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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