After Breaking Records Brazilian Markets Take a Breather

Latin American markets declined, as investors took some profits after the major regional indices broke record highs in several consecutive sessions. News that the U.S. Federal Reserve had raised interest rates and seems poised to continue doing so also weighed.

Brazil’s benchmark Bovespa Index fell 17.03 points, or 0.06%, while Mexico’s benchmark Bolsa Index dropped 93.37 points, or 0.60%. Argentina’s Merval Index shed 5.76 points, or 0.35%.


Weighing on North and South American shares, the U.S. Federal Reserve hiked interest rates by 25 basis points to 3.75%. The Fed found that the devastation caused by Hurricane Katrina and a surge in oil prices imply that “spending, production and employment will be set back in the near term.” Yet, the central bank does not believe these developments will pose a “more persistent threat.”


Further, while higher energy costs have the potential to add to inflation pressure, core inflation has been relatively low in recent months and the longer-term outlook for inflation remains tame.


As a result, the Fed anticipates removing its policy accommodation at a pace “likely to be measured,” contrary to some market players’ expectations that the central bank would pause in its rate hiking policy in the aftermath of the hurricane.


In other U.S. data of note, housing starts dropped by 1.3% in August, following a 1.5% decline the prior month, and compared to estimates for a decrease of 1.1%.


Brazilian shares eased back on profit-taking following the U.S. Fed announcement. Yet, on the home front, inflation data continued to be benign. The consumer price index for São Paulo rose 0.03% in the four weeks ended September 15, versus a drop of 0.11% in the prior reading, and in line with expectations.


Meanwhile, the Getúlio Vargas Foundation showed a slight decline in prices nationwide of 0.54% in the first ten days of September, meeting projections as well.


In other reports, a study by the Partner Consulting Group predicts that consumer credit availability in Brazil could reach 312 billion reais, or 12% of GDP, by 2015, reported news services.


In corporate news, a federal auditing court found preliminary indications of irregularities in contracts between Petrobras and supplying companies, including irregular pricing and overbilling.


Elsewhere, meatpacker Sadia unveiled plans late yesterday to invest 1.5 billion reais in its local businesses, building new plants, between 2006 and 2009.


Mexican issues, meanwhile, retreated as well, after breaking record highs in recent sessions. In the spotlight, on the corporate front, steel-processing firm G Collado reported that it had been holding talks to be acquired by Ternium, the regional steel group recently launched by Argentina’s Techint.


In research news, an investment bank reinstated media giant Televisa with a “buy” rating and a US$ 85 price target, citing its strong management team and its positioning versus the competition.


Argentine stocks ended flat to lower, in line with regional peers, and amid soft primary surplus data. The surplus for August totaled 1.846 billion pesos, below expectations of 1.9 billion pesos. On the bright side, the number of people in registered private-sector jobs grew in August by 1.1% from the prior month, or 9.5% from the prior year.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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