Polls Give Lula Lead But Don’t Help Brazil’s Market

Latin American stocks dropped, with Brazilian shares posting the biggest losses on continued worries about the impact of rising oil prices on the inflation and interest-rate outlooks at home and abroad.

Brazil’s Bovespa Index sank 573.54 points, or 1.49%. Mexico’s benchmark Bolsa Index fell 83.20 points, or 0.43%, while Argentina’s Merval Index declined 13.63 points, or 0.74%.

Brazilian stocks dropped, extending the previous day’s sell-off amid continued concerns about rising U.S. interest rates and oil prices. Oil prices have posted sizable gains in recent sessions on strong global demand and concerns about potential supply disruptions due to uprisings in Nigeria and a standoff between the U.S. and Iran over its nuclear program.

Moreover investors fear that rising global energy costs will fuel inflation, forcing the U.S. Federal Reserve to continue raising interest rates and potentially impeding the Brazilian central banks move to loosen its monetary policy.

On the political front, the Sensus group released a poll today showing Brazilian President Lula with 37.5% of voter preferences, against only 20.6% for Social Democratic Party rival Geraldo Alckmin and 15% for possible Brazilian Democratic Movement candidate Anthony Garotinho. President Lula’s lead over his opponents was weaker than in a February Sensus poll, but his level of approval rose slightly.

Elsewhere, Brazil’s largest telecom company, Telemar, was in focus amid mounting speculation that Portugal Telecom will make an offer for a stake in the company.

Shares of paper and pulp company Votorantim were active after a major investment bank upgraded the stock to overweight, saying "pulp and paper markets look to remain tighter for longer than we previously anticipated."

In economic news, industrial employment in Sao Paulo state rose 0.29%, or by a net 6,038 jobs, in March from February.

Mexican shares moved lower in pre-holiday trading and on low volume, as local markets will be closed Thursday and Friday ahead of the Easter holiday. Meanwhile, U.S. weakness was also a factor, as continued strength in crude oil prices and concerns regarding Iran and Nigeria pressured the market.

Meanwhile, a major investment bank raised its price target on homebuilder Ara to 59.2 pesos from 56 pesos, as the firm’s planned dividend is expected to "boost profitability ratios." Ara shares jumped higher on the day.

Within the steel group, Notimex, the government news agency, announced that strikers at Mittal Steel’s plant in the Mexican port of Lazaro Cardenas agreed to return to work today. The local chapter of the National Mining and Metal Workers Union decided to end the walkout when the firm recognized Napoleon Gomez Urrutia as national leader of the union. Meanwhile, copper miner Grupo Mexico declared force majeure earlier this Tuesday, April 11, on select deliveries due to the strike at its La Caridad copper mine.

Home construction firm Geo announced that it expects to post first-quarter net profit gains of between 23.1% and 23.4%, compared to the year-earlier period, with revenue growth surpassing 20%.

Turning to telecom news, Telmex and America Movil asked for approval from Venezuela to bid for the remaining shares of CANTV. Before a decision can be made, CNV, Venezuela’s securities regulator, will review the proposal, while telecom regulator Conatel anti-monopoly and unit Precompetencia must give a favorable ruling.

Argentine shares witnessed some profit-taking today, after the key Merval Index reached a fresh record high yesterday. Similar to Mexico, pre-holiday trading also played a role.

Thomson Financial – www.thomsonfinancial.com

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