Brazilian Market Betting on Deep Cut in Interest Rates

Latin American stocks fell, with Brazilian shares falling on profit taking following recent gains on last week’s news of a credit rating upgrade. Meanwhile, weakness on Wall Street amid rising bond yields weighed on Mexico’s bolsa.

Brazil’s Bovespa Index tumbled 885.77 points, or 2.26%. Mexico’s benchmark Bolsa Index dropped 197.79 points, or 1.03%, while Argentina’s Merval Index dipped 7.76 points, or 0.43%.

Brazilian stocks sank, as investors took some profits after the market reached a record high last week on news that Standard & Poor’s raised Brazil’s long-term sovereign credit rating to BB from BB-, citing "the continued and marked improvement in Brazil’s external debt indicators."

The market may have also been pressured by investor caution ahead of the central bank’s monetary policy meeting on Wednesday. The bank is widely expected to extend its string of interest rate cuts amid recent indications of tame inflation.

Analysts largely expect a cut of at least 75 basis points from the current lofty level of 17.25%. Moreover, some are anticipating an even deeper cut after a local news report over the weekend suggested the central bank is under greater pressure from the government to accelerate its easing cycle following sluggish economic growth results in the fourth quarter.

Fueling optimism about the outlook for interest rates, the Fipe research foundation reported today that its São Paulo consumer price index fell 0.03% in February, compared with an increase of 0.5% in January. The February inflation figure was in line with forecasts.

In corporate news, local media reported that Braskem and oil major Petrobras are in talks over a US$ 350 million petrochemical plant in northeastern Bahia state. The unit would have a capacity to produce 500,000 tons per year of terephthalic acid.

Separately, Petrobras said it will start trading its shares at the Buenos Aires stock exchange in the coming days Petrobras shares currently trade in São Paulo, New York and Madrid. The oil giant is scheduled to hold a presentation at the Buenos Aires exchange on Friday, March 10.

Meanwhile, Mexican shares dropped in line with the U.S. market amid concerns about rising U.S. bond yields. The weakness on Wall Street eroded positive sentiment generated by M&A activity in the local telecom sector.

Venezuelan press reports named both Telmex and America Movil as potential acquirers for a stake in Venezuela’s CA Nacional de Telefonos de Venezuela (CANTV). Telmex is also seen as a likely bidder for a controlling stake in Colombia Telecomunicaciones SA.

In other news, media firm Grupo Televisa SA said it would invest US$ 20 million to install and run a new in-store television advertising system in Wal-Mart de Mexico stores.

Elsewhere, Argentine issues retreated after advancing strongly last week on earnings optimism generated by positive financial results from the likes of steel pipe maker Tenaris.

Investors are also looking ahead to further earnings reports this week from Telecom Argentina and steel company Siderar.

Bucking the market’s downtrend today, Banco Macro Bansud climbed on news of its approaching ADR launch of around 150 million shares. Shares were also supported by expectations the company will report upbeat fourth-quarter earnings results.

Thomson Financial – www.thomsonfinancial.com

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