In Brazil, It’s Time for the Market to Pocket Profits

Brazilian and Latin American markets eased back, as investors booked profits after several record-breaking sessions. Yet, overall, economic data in the region remained encouraging, while oil prices cooled off.

Brazil’s benchmark Bovespa Index fell 158.86 points, or 0.52%, while Mexico’s benchmark Bolsa Index dropped 73.28 points, or 0.47%. Argentina’s Merval Index shed 6.57 points, or 0.40%.


Brazilian shares took a dive due to profit-taking, and as global investors cautiously returned to the U.S. market when Hurricane Rita was downgraded to Category 4.


On the domestic front, Brazil’s central bank released minutes of last week’s meeting when it lowered interest rates. The bank called the inflation “benign,” but intends to remain cautious in its approach in the face of possible threats such as surging oil prices.


In other data, the unemployment rate remained flat at 9.4% in August, below expectations ranging from 9.5% to 9.7%. Also, inflation slowed to 0.16% in the August 12 to September 12 period, down from 0.28% in the prior period.


Mexican issues, meanwhile, dipped as well. Of note, north of the border, economic reports were mixed. U.S. leading indicators slipped 0.2% in August, after falling 0.1% the prior month. A 0.3% decline had been predicted. Also, weekly initial jobless claims increased by 8,000 to 432,000, below the expected gain of 52,000. However, claims from the prior week were revised upward to 432,000 from 327,000.


Closer to home, unemployment retreated in August in Mexico, reaching 3.3%, versus 3.75% in July. In addition, the consumer price index inched up 0.36% in the first half of September, below targets of 0.39%. Also of note, news services reported that for the most part, economists expect the central bank to reduce interest rates by at least 25 basis points tomorrow.


In research, an investment bank lowered brewer Grupo Modelo to “neutral” from “buy,” saying that higher marketing and packaging costs were offsetting benefits from the firm’s restructuring efforts.


In other corporate news, conglomerate Alfa SA unveiled plans to pay US$ 150 million in dividends and to buy back US$ 100 million in shares.


Argentine stocks eased back, in line with regional peers. Of note, Argentine debt securities also tumbled on news late yesterday of a failed government bond auction.


On the bright side, a major investment bank raised its price target on Tenaris for the end of 2006. The brokerage commented that the steel pipe maker’s seamless prices appear stronger than expected, while volume remains robust.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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