US Rate Hike Cools Brazilian Market

Brazilian markets declined, yesterday, ahead of a possible U.S. interest rate hike on Wednesday. Inflationary fears stoked selling in Brazil. Brazil’s benchmark Bovespa Index dropped 329.74 points, or 1.40%.

Brazilian issues fell, ahead of an expected interest-rate hike in the U.S. on Wednesday. Such a monetary tightening would draw capital away from emerging markets like Brazil by offering higher returns in the U.S.


Locally, four inflation indexes will be reported this week starting today. All are predicted to show price increases are accelerating, which would bolster the argument for greater domestic monetary policy tightening in the coming months.


According to a central bank market survey released early yesterday, economists anticipate 2005 IPCA consumer price inflation rising to 5.9% from the 5.8% posted in October.


On the corporate front, Citigroup said it would up its holding in Brazil’s leading credit card company, Credicard Group, to 50% from 33%. Citigroup stated that both it and Banco Itaú would raise their stakes to 50%.


As part of the deal, the firm added that Itaú would increase its ownership in card processing and servicing business Orbitall to 100% by purchasing all of Citibank and Unibanco’s stakes.


Also, shares of Cemig and Cesp dragged, following Friday’s news that the government published new rules that analysts said would weigh on prices at upcoming wholesale power auctions.


Turning to research, a major Wall Street investment bank started coverage on Brazilian electric power utility CPFL Energia SA with a “buy” recommendation.


The analyst noted, “CPFL is ideally positioned to benefit from the improving outlook for the Brazilian electricity sector,” adding, “CPFL’s high quality distribution assets should see growth driven by rising electricity demand that has historically risen by rapid rates in Brazil.”


Brazil’s Trade and Development Ministry announced that the country’s trade surplus reached US$ 683 million over the first seven days of November, hoisting the year-to-date surplus to US$ 28.80 billion.


The results reflect a steady trend of increasing trade activity in Brazil, due to a competitive currency, structural changes in the economy and healthy prices for key exports like sugar, steel and iron ore.


The trade surplus so far this year has already exceeded 2004’s record-breaking US$24.83 billion surplus.


PRNewswire
Thomson Financial Corporate Group
www.thomsonfinancial.com

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