Enduring Scandal Drags Brazilian Stocks Down

Latin American markets were mostly weaker today, as Brazil posted a more meaningful decline than yesterday. A combination of surging oil prices, profit-taking and political tensions pressured Brazil.

Argentina also receded, as the country’s financial reports continue to trickle in. Meanwhile, Mexico advanced alongside a late-day rally in the U.S.


Brazil’s benchmark Bovespa Index tumbled 483.80 points, or 1.78%, while Mexico’s benchmark Bolsa Index advanced 66.37 points, or 0.45%. Argentina’s Merval Index declined 12.64 points, or 0.84%.


Brazilian issues staged another pullback today, deeper than yesterday, as a combination of profit-taking and surging oil prices dictated trading direction.


Brazil, a net importer of oil, saw crude oil prices close well above US$ 65 a barrel, a fresh record high. Also, earnings releases continue to capture market focus.


Meanwhile, investors are also closely monitoring Brazil’s political climate. The Senate approved a 28% increase in the minimum wage, a move that runs counter to President Luiz Inácio Lula da Silva’s wishes.


If the increase is approved by the lower house, 12 billion reais could be lost from public spending. Some investors noted the ongoing political scandal may have weakened the position of President Lula’s governing Workers Party.


CVRD said that higher prices for iron ore and pellets supported a surge in the firm’s second-quarter net profits to 3.48 billion reais from 1.68 billion reais a year ago, as gross operating revenue climbed to 10.05 billion reais from 7.37 billion reais last year.


EBITDA, meanwhile, totaled 5.33 billion reais, compared with 3.38 billion reais. Separately, yesterday, the country’s Anti-Trust Council ordered the firm to give up a preferential purchase option for iron ore at one of CSN’s mines, a decision that CVRD said it may appeal.


The council said CVRD must also reduce its stake in MRS Logistica or give up its veto power over key decisions by MRS Logistica’s board.


Within the financial group, Unibanco posted a second-quarter profit of 453 million reais, a 48.5% leap from the 305 million reais posted a year ago. Brazil’s third-largest private bank credited restructuring efforts with the rosier result. Operating profit rose to 684 million reais from 401 million reais.


Flat-steel producer Usiminas said that its net profit for the second quarter rose to 810 million reais from 528 million reais, on higher revenue of 3.49 billion reais versus 2.77 billion reais. Still, the most recent profit figure landed below market expectations and the first-quarter result, as the global decline in steel prices took a toll.


Mexican shares were resilient against a broader regional downturn. Investors are awaiting tomorrow’s Bank of Mexico meeting, in which it is widely expected monetary policy will remain unchanged.


Grupo Mexico continued to power higher on yesterday’s announcement that its U.S. unit, Asarco, filed for bankruptcy protection. The move could take some financial pressure off of Grupo Mexico.


In economic news, industrial production rose a less-than-expected 0.7% in June from a year ago, and declined 1.16% from May. The Finance Ministry said that manufacturers were negatively impacted by a slowdown in the auto sector.


Argentina turned lower, as investors digested the country’s latest corporate earnings reports. Also, consumer confidence leapt 3.1% in August from July to 52.1, following four-straight monthly declines.


Fixed-line phone provider Telecom Argentina swung to a second-quarter profit of 179 million pesos, reversing a year-earlier loss of 350 million pesos. Net sales advanced to 1.35 billion pesos from 1.05 billion pesos.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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