Brazil’s Corruption Scandal Keeping Country from Having Better Credit Profile

Latin American markets mostly declined on the day, as investors continued their trend from yesterday of booking profits, following broad-based gains early in the week. Brazil tumbled, while Mexico was little changed.

Dampening investor sentiment was a sharp drop in U.S. shares amid rising oil prices and disappointing July same-store sales results. Investors are also preparing for tomorrow’s release of the U.S. employment report.


Brazil’s benchmark Bovespa Index tumbled 244.17 points, or 0.91%, while Mexico’s benchmark Bolsa Index edged down 3.74 points, or 0.03%. Argentina’s Merval Index jumped 18.62 points, or 1.23%.


Brazilian shares continued to give back some of the impressive gains earned earlier in the week. Concerns regarding the latest developments in the alleged cash-for-votes scandal also hit the market.


Congressman Roberto Jefferson, who initially brought about allegations tying the governing Workers’ Party to the bribery scandal, provided further congressional testimony today; although, no new revelations came to light.


In other news, Standard & Poor’s said that the country’s ongoing political scandal is preventing the credit rating agency from upgrading Brazil’s sovereign credit rating.


In earnings headlines, TAM said that higher fuel costs led the airline to post second-quarter earnings before interest, tax, depreciation, amortization and aircraft rental costs of 170.9 Brazilian reais, down from 201.3 million reais in the corresponding period a year ago.


The firm also swung to a net loss of 24.7 million reais, compared to a profit of 206.5 million reais last year. The year-ago figure was bolstered by a gain in aircraft leasing arrangements. Without the gain, the firm would have lost 26.6 million reais. Also, net revenue leapt to 1.246 billion reais from 992.9 million reais in the corresponding quarter a year ago.


Elsewhere, Ultrapar posted a 20% decline in its second-quarter net profit to 89 million reais from 112 million reais a year ago, as the petrochemicals holding firm was hit with high interest rates and the appreciation of the real. Ultrapar’s net revenues rose to 1.20 billion reais from 1.19 billion reais, while EBITDA slipped to 165 million reais from 194 million reais.


Mexican shares ended little changed, as traders digested a recent string of highs for the country’s key index. Also, U.S. markets tumbled due to rising crude oil prices and a mixed bag of retail sales results. Mexico exports the vast majority of its goods to the U.S.


Last night, the Mexican Miners’ and Metalworkers’ Union said that about 4,000 workers will go on strike on August 12 at Grupo Mexico’s five mining and refinery facilities in northern Sonora. The strike could last up to two days if the workers demands for pay and bonus rises are not met.


Argentina recuperated today, regaining some of what was lost during yesterday’s session. Amid the latest financial releases, natural gas pipeline operator TGS posted a second-quarter net profit of 63.8 million pesos, reversing a year-earlier loss of 52.6 million pesos, thanks to favorable foreign exchange rates.


Net sales edged down to 234.4 million pesos from 234.6 million pesos last year, while operating profit declined to 110.7 million pesos from 121.2 million pesos.


Elsewhere in Latin America, Chile’s consumer prices advanced 0.6% in July, compared to the 0.3% uptick seen in June. The robust reading fed speculation of a rate hike next week.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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