Lula Talks About Cuts in Interest and Market Soars in Brazil

Latin American markets continued to power higher alongside modest strength from the U.S. A surprisingly narrow U.S. trade deficit in May and an upbeat research note on Dow member IBM helped support U.S. shares.

Also aiding market sentiment was another decline in crude oil prices. Brazilian shares rallied on interest-rate cut expectations. Meanwhile, the Mexican benchmark index posted another record high. Argentina managed a small gain after spending much of the session in the red.


Brazil’s benchmark Bovespa Index jumped 319.66 points, or 1.25%, while Mexico’s benchmark Bolsa Index advanced 33.56 points, or 0.24%. Argentina’s Merval Index edged up 1.05 points, or 0.07%.


Brazil’s winning streak continued today, after President Luiz Inácio Lula da Silva, who is in Paris, indicated the country’s high interest rates may soon be cut.


President Lula said in a speech at the French Business Leaders’ Group that expectations of easing inflation and fiscal controls are “signaling a consistent trend for lower interest rates.”


Currently, the base Selic interest rate stands at 19.75%.


Also adding to positive sentiment, the IBGE statistics institute reported that retail sales volume rose 2.7% in May versus the year-ago figure. May’s latest reading rose by 0.4% when compared with April.


Separately, the Getúlio Vargas Foundation’s quarterly survey of Brazilian manufacturers showed declines in confidence regarding business conditions from both the prior survey in April and the corresponding-period results from a year ago.


On the corporate front, electric power utility Energias do Brasil, the Brazilian unit of Energia de Portugal, was active in its market debut on Sao Paulo’s Bovespa stock exchange.


Elsewhere, steel firm CSN intends to reopen an issue of perpetual bonds whose value could reach US$ 100 million to US$ 200 million, according to a Dow Jones Newswires source close to the matter.


Conglomerate Votorantim announced the sale of its Votocel plastic film packaging business to Argentina’s Vitopel for US$ 120 million. Votorantim intends to use the sale’s proceeds for reinvestment in its Brazilian operations.


Mexican issues posted a record high for the second-straight session, ahead of the country’s second-quarter earnings season, which will kick-off in earnest next week.


Televisa was active ahead of its quarterly financial release, due out tomorrow after the close. An investment bank expects the media group to post strong results.


Argentine issues edged higher, after falling for much of the session. Investors were disappointed there will be no change to the recently imposed capital controls.


Last night, President Nestor Kirchner said at an event to commemorate the local stock exchange’s 151st anniversary that the capital controls, which initiated a 30% lockup of incoming foreign portfolio flows, are necessary and will remain in effect.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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