Brazil stocks declined this Thursday, following word that China hiked interest rates. The People’s Bank of China raised its one-year lending rate to 5.58% from 5.31%, while the one-year deposit rate was boosted to 2.25% from 1.98%.
This was the government in action trying to cool the nation’s growth and inflation. Some Brazilian investors worry that moderating growth in China will result in less demand for base metals and other commodities.
Brazil’s benchmark Bovespa Index fell 242.28 points, or 1.05%. Brazilian issues fell, as China’s rate hike stoked fears that the country could reduce imports from emerging markets.
Analysts explained that Brazil’s economic growth, which has primarily been bolstered by robust exports, could weaken if China cuts purchases of raw materials like steel.
Shares of the world’s leading iron ore miner, CVRD, dragged on the news.
Additionally, the release of bearish central bank comments from last week’s monetary policy tightening added pressure.
Brazil’s central bank stated that recent rate hikes had failed to dampen financial markets’ inflation expectations, suggesting further sizable interest rate hikes may be forthcoming.
The bank indicated that it was concerned domestic fuel price increases lagged behind the spike in world oil prices, prompting steeper 2005 inflation estimates.
In response, some analysts raised their projections for the November Selic rate hike to 0.5 percentage points from 0.25 percentage points.
On the earnings front, Tele Norte Leste Participacoes reported a third- quarter net profit of 159.3 million reais, compared with a net loss of 23.6 million reais a year ago, aided by increased phone rates and greater revenue from its long-distance and wireless divisions.
Also, Brazil’s largest private bank, Banco Bradesco, posted net earnings that rose to 752 million reais in its third quarter from 564 million in the year-earlier period.
According to Thomson Financial Brasil, analysts had forecast earnings of 678 million reais, on average. The bank mainly cited the streamlining of operations and cost cutting efforts over the past year for the higher profits.
Amid deal items, Brazilian steelmaker Gerdau’s North American unit, Gerdau Ameristeel, publicized an agreement to purchase the assets of U.S. concrete reinforcing steel producers Gate City Steel and RJ Rebar for an undisclosed sum, in the subsidiary’s second acquisition in as many months.
Thomson Financial Corporate Group