Finance Minister Denies Resignation Rumors and Gives Brazil a Boost

Latin American stocks spiked up, thanks to lower oil prices, pleasing economic reports, strength on Wall Street and momentary relief regarding an ongoing political scandal in Brazil.

Brazil’s Bovespa Index surged 604.88 points, or 1.98%. Mexico’s benchmark Bolsa Index rose 144.71 points, or 0.89%, while Argentina’s Merval Index added 16.26 points, or 1.03%.

Brazilian stocks firmed, as investors continued to react positively to testimony from Finance Minister Antonio Palocci yesterday.

In his address, the Minister allayed fears that he would soon resign, amid criticism over his policies and allegations of bribery. Separately, a drop in oil prices and strength on Wall Street also helped.

In economic news, retail sales edged up 0.1% in September, versus August, while climbing 5.62% from a year ago. Economists had predicted a 0.2% decline from August.

On the corporate front, oil firm Petrobras noted that its oil output fell to 1.723 million barrels a day in October from 1.733 million the prior month.

Separately, the firm reported that a project to develop gas reserves off the coast of São Paulo state will cost about US$ 1.9 billion. Petrobras is still negotiating with Spanish-Argentine Repsol over how to develop the project.

Turning to industrials, aircraft maker Embraer forecast strong demand for its recently launched Phenom light and very light jets.

Separately, low-cost airline Gol is ironing out the last details on a joint venture with Mexico’s Inversiones y Tecnicas Aeroportuarias to launch a low-cost airline in Mexico in the second quarter of next year.

Meanwhile, supermarket chain CBD reported that its October same-store sales edged lower by 0.1% from a year ago due to lower consumer confidence and deflationary trends in some product categories.

In research, a major investment bank started Energias do Brasil at "overweight" and CPFL Energia at "neutral."

Elsewhere, Mexican shares recorded strong gains as well, as investors continued to cheer in-line third-quarter GDP figures released late yesterday. An influential investment bank lifted its GDP projections, explaining that, "the manufacturing outlook for the fourth quarter has brightened, backed by recent signs of strengthening in U.S. manufacturing."

Speaking of U.S. manufacturing, U.S. industrial output gained 0.9% in October, after falling 1.5% the prior month, roughly in line with estimates. Capacity use increased to 79.5% from a revised 78.9%.

However, the Philly Fed index fell to 11.5 in November from 17.3 in October, below targets for a reading of 17.0. Also, housing starts declined by 5.6% in October, versus the anticipated drop of 2.8%. In other U.S. reports, weekly initial jobless claims fell by 25,000, compared with expectations for a decline of 2,000.

In domestic news, oil company Pemex reported that its output declined to 3.22 million barrels a day in October from 3.45 million a year prior.

In research, a key investment bank backed its "buy" rating on Walmex, seeing benefits from "greater emphasis on smaller and rural markets."

Meanwhile, Argentine issues firmed, in line with regional counterparts. A rally in domestic bonds provided support on the equity side of the equation. Further, investors were reportedly enthusiastic over the launch of a new instrument called Macc, which bundles together the largest Merval stocks like an exchange-traded fund.

Of note, in economic reports, industrial output jumped 9.5% in October from 8.6% the prior month, well past forecasts of 8.0%. Separately, national statistics agency INDEC upwardly revised its monthly GDP estimates, seeing a 9.0% increase in September on the year and a 1.1% improvement from August. August’s results were also revised higher.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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