First Quarter Earnings Reports Drive Brazilian Stocks to Record Day

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Latin American stocks advanced, with Brazilian shares getting a boost from optimism about local corporate earnings, while tame domestic inflation data lifted Mexican issues.

Brazil’s Bovespa Index jumped 463.80 points, or 1.12%. Mexico’s benchmark Bolsa Index rose 214.26 points, or 0.99%, while Argentina’s Merval Index added 20.01 points, or 1.07%.

Brazilian shares rallied to an all-time high, as continued upbeat earnings news added to recent optimism about Brazil’s first-quarter earnings season.

Among the companies reporting today, Banco Itaú posted a first-quarter net profit of 1.460 billion reais, up 28% from 1.141 billion reais a year ago and in line with expectations.

On a less upbeat note, steelmaker Usinas Siderurgicas de Minas Gerais said its first-quarter net profit fell 66% to 345 million reads from 1.0 billion reads a year earlier, amid lackluster domestic demand for flat steel products and a decrease in value of the company’s product mix.

In other corporate news, Mexico’s Telex asked Brazil’s securities regulator for permission to make a cash tender offer for the outstanding shares of Brazilian long-distance carrier Embattle. Telex currently holds a 72.3% stake in Embattle.

Meanwhile, investors were looking ahead to the U.S. Federal Reserve’s interest rate decision and accompanying policy statement Wednesday, May 10.

The Fed is widely expected to raise interest rates by 25 basis points, but some investors are hopeful the central bank will signal a pause in its monetary tightening cycle at future meetings.

Elsewhere, Mexican shares climbed to a new record closing high, as investors cheered tamed local inflation data. The bank of Mexico reported that Mexico’s consumer price index rose just 0.15% in April, below market expectations for an increase of 0.18%. That helped bring the annual rate of inflation down to 3.20% from 3.41% at the end of March.

In other economic data, Mexico’s March trade deficit narrowed to US $147 million from the US $183 million reported previously, helped by downward revisions in automotive sector imports, the Finance Ministry said.

On the corporate front, shares of Wal-Mart de Mexico rose amid expectations the retail giant would report upbeat April same-store sales after the market close.

In addition, a major investment bank raised its year-end price target for America Movil ADRs to US $41 from US $38, citing the company’s first-quarter results.

Argentine issues posted solid gains, helped by strength in the shares of Merval heavyweight Tenaris amid rising oil prices. In analyst actions, an influential investment bank started coverage of Banco Macro at "neutral," saying the Argentine bank’s shares have already risen rise sharply since the debut of its ADRs.

Thomson Financial – www.thomsonfinancial.com

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