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Brazilian Shares Rally Echoing Wall Street

Brazilian and Latin American markets followed the U.S. market higher as investors cheered a drop in crude prices and the nomination of Ben Bernanke as the new chairman of the U.S. Federal Reserve.

Brazilian and Mexican shares were also supported by optimism about those countries’ local economies, while Argentine issues were further boosted by positive congressional election results.

Brazil’s Bovespa Index rallied 659.20 points, or 2.26%. Mexico’s benchmark Bolsa Index jumped 452.96, or 3.04%, while Argentina’s Merval Index surged 30.05 points, or 1.89%.

Brazilian stocks advanced strongly amid optimism about the local economy and a decline in oil prices. A survey released by the central bank showed that Brazil’s inflation forecast for 2006 remained unchanged at 4.6%. The outlook for 2005 inflation edged up to 5.31% from 5.22%.

Meanwhile, the outlook for the economy and interest rates remained upbeat. The economy is seen growing 3.3% and 3.5% for this year and next, respectively, and interest rates are expected to end the periods at 18.0% and 16.5%. The Selic interest rate is currently at 19%.

On the corporate front, iron ore miner CVRD’s chief executive officer Roger Agnelli offered a positive outlook for the company. He said CVRD will break production records over the next several years and will be in a good position to negotiate higher iron ore prices when talks begin next month.

In other developments, a poll released yesterday by the Folha de S. Paulo newspaper showed that the approval rating of the administration of Brazilian President Luiz Inácio Lula da Silva has declined again this month.

The number of respondents classifying the government as "good" slipped to 28% in October from 31% in the last poll in August. Also, the proportion of respondents classifying the government as "poor" rose to 28% in October from 26% in August.

Elsewhere, Mexican shares posted robust gains, supported by strength in the U.S. market and positive economic data at home. The Finance Ministry reported today that Mexico’s trade deficit narrowed to US$ 268 million in September from US$ 444 million a year earlier. That was also down from August’s deficit of US$ 600 million. Export growth was helped by strong crude oil prices.

Meanwhile, the central bank said the Consumer Price Index edged up 0.19% in the first half of October, below expectations for a 0.27% increase. In the same month a year ago inflation rose 0.51% annually.

As such, the annual rate sank to about 3.1% from 3.5% at the end of August, within reach of the Bank of Mexico’s target of 3%. Due to recent benign inflation data, the central bank is widely expected to continue its easing cycle this Friday.

Argentine issues climbed amid encouraging news on the political front. In congressional elections over the weekend, First Lady Cristina Kirchner won a Senate seat representing the Buenos Aires province. She received a wide margin over opponent Hilda Duhalde, the wife of former President Eduardo Duhalde.

Under Argentina’s complex voting system, Cristina Kirchner’s senate victory pulls an affiliated "list" of candidates into the lower house as well. As such, President Nestor Kirchner now has substantially more backing in Congress that should help him move forward with his agenda.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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