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Chief of Staff Resignation Makes Brazil Go Shopping

Latin American shares powered higher, lead by gains from both Brazil and Mexico. Brazilian shares continued to gain momentum as political tensions ease. President Lula’s top aide and chief of staff resigned last night.

Mexican shares also rose, alongside U.S. markets, as U.S. consumer sentiment leapt in May. Record high oil prices failed to discourage investors. Argentina, however, receded, as options contracts expiration applied some pressure.


Brazil’s benchmark Bovespa Index jumped 342.35 points, or 1.33%, while Mexico’s benchmark Bolsa Index leapt 108.68 points, or 0.80%. Argentina’s Merval Index gave up 14.71 points, or 1.01%.


In U.S. economic data, the University of Michigan’s mid-June reading of consumer sentiment jumped to 94.8 from 86.9 in May, handily beating economists’ forecasts of 89.0.


Separately, the U.S. current account deficit widened to US$ 195.1 billion in the first quarter from a revised US$ 188.4 billion in the previous quarter, missing expectations for a deficit of US$ 190.0 billion.


Brazilian shares continued their recovery, as investors become more confident that the recent political scandals roiling the market are subsiding.


President Luiz Inácio Lula da Silva’s chief of staff, José Dirceu, presented his resignation. Dirceu had been named in connection with the Workers Party alleged bribery scheme to win votes on legislation.


Meanwhile, according to the Public Opinion Research Institute, or Ibope, Brazilian approval of President Lula’s administration fell to 35% in June from 39% in March.


The poll also indicated that President Lula’s popularity fell to 56% in June from 60% in March. The margin of error is plus or minus 2.2 percentage points.


Topping corporate headlines, Latin America’s largest airline, Varig, filed for bankruptcy protection today in a move that may have prevented AIG’s aircraft leasing unit, ILFC, from taking 11 of its aircraft.


ILFC set today as a deadline for Varig to make payments on the aircraft. Varig’s lawyer said the bankruptcy will stop ILFC from obtaining the aircraft.


Mexican issues continued to power higher for the fifth-consecutive session. A positive day for the U.S., its key trading partner, also boosted sentiment.


In a quiet day for domestic firms, state oil company Pemex said that its crude oil production levels rose to 3.44 million barrels a day in May from the 3.39 million b/d in the corresponding period a year ago. Nevertheless, exports fell to 1.84 million b/d last month from 1.97 million b/d a year earlier.


Argentine issues turned lower on the day, following three consecutive sessions of positive trading. The Argentine market felt some pressure from the second day into the expiration of options contracts. The market may be somewhat volatile into next week, as traders have until next Wednesday to settle exercised contracts.


In corporate reports, power distributor Edesur, a unit of Spain’s Endesa, signed an agreement with the Argentine government that will allow it to increase its average power price 15% starting this November. Endesa had previously rejected the offer, as the firm believed the rate increases are too low.


Elsewhere, BP Trinidad and Tobago agreed on the sale of the Teak, Samaan and Poui oil fields, off the south east coast of Trinidad, to Perenco and Neal & Massy Energy. The sale is conditional on whether Spanish-Argentine oil firm Repsol YPF, which is a shareholder in BP Trinidad and Tobago, exercises its preemption right to purchase the TSP assets.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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