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Brazil Goes Lower Waiting for Poll Where Lula Loses Reelection by Large Margin

Latin American markets mostly declined, pressured by a steep sell-off in Brazil. Investors were somewhat disappointed that the central bank did not cut interest rates, even though a hold on rates had been expected.

Also, a poll that is allegedly set for release this weekend indicates that Brazil’s President may not win reelection next year. Mexico managed modest gains, while Argentina moved lower. U.S. markets, meanwhile, were little changed.


Brazil’s benchmark Bovespa Index plunged 516.38 points, or 1.88%, while Mexico’s benchmark Bolsa Index rose 59.65 points, or 0.41%. Argentina’s Merval Index receded 6.18 points, or 0.41%.


Brazilian stocks gave up yesterday’s gains, as investors were somewhat disappointed the central bank did not surprise them with a rate cut. As expected, the Brazilian Central Bank kept the base Selic interest rate unchanged at 19.75% for the third-straight month.


The bank set no bias for future rates. Also, the central bank said the current account surplus was US$ 2.59 billion in July, compared to US$ 1.81 billion a year ago. Strong export performance continued to boost the surplus. July’s result lifted the 12-month current account surplus to US$ 13.39 billion, or 1.94% of gross domestic product.


Investors believe the bank may start cutting rates starting next month, and a batch of economic reports released today helped to support this sentiment. São Paulo’s Fipe research institute said that the consumer price index in São Paulo edged up only 0.07% in the four weeks ended August 15, compared to a 0.19% advance in the four weeks ended August 7.


Separately, the Getúlio Vargas Foundation reported that the Brazilian General Price Index, or the IGP-M, declined 0.49% in the 10 days through August 20 versus a 0.25% dip in the corresponding period in July.


Meanwhile, a local television station reported that a new poll indicates that President Luiz Inácio Lula da Silva will lose next year’s presidential elections by a substantial margin. The poll is set for release this weekend.


On the corporate front, state-run oil firm Petrobras said that it is in preliminary talks with Iran to explore for oil in the Caspian Sea.


Meanwhile, government-controlled Banco do Brasil said that it will relinquish some of its Telemar shares in order to comply with the Brazilian Telecommunications Authority’s regulations, according to financial daily Valor Economico.


The rules stipulate that institutions cannot hold controlling stakes in rival phone companies, and Banco do Brasil holds stock in Telemar competitor Brasil Telecom.


In research reports, a major investment bank lifted its price target on CVRD to US$ 37 from US$ 33, as it is less cautious on iron ore prices due to the improving outlook and higher-than-expected demand.


Mexican shares gained stronger footing in positive territory. America Movil helped boost the main index, despite receiving a downgrade from an investment bank.


Grupo Mexico said that there was no significant impact on its overall output from work stoppages earlier in the week at its Mexican mining operations.


Meanwhile, the Mexican Mining and Metallurgical Workers Union met with labor authorities and Villacero for further talks regarding an ongoing strike at the Sicartsa plant.


Meanwhile, Pemex said that crude oil production fell 8.3% in July from the year-ago period to 3.08 million barrels a day. The Mexican state oil monopoly said that a shut down of offshore operations due to a hurricane pressured July’s output.


Argentine stocks slipped lower, amid the expiration of options contracts, which began today. In economic news, INDEC said that a preliminary reading indicated that the country’s unemployment rate was 12.1% in the second quarter, down from 13% in the first quarter. Final results for the second quarter and first half of the year will be released on September 15.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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