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Higher Inflation and Lower GDP Make Investors Cautious in Brazil |
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Written by Paul Davee
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Friday, 25 November 2005 |
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Latin American stocks are mixed to higher at midday, with Mexican shares climbing on lower domestic interest rates, while Brazilian issues are little changed amid caution ahead of an upcoming report on gross domestic product.
Brazil's Bovespa Index is adding 74.75 points, or 0.23%. Mexico's benchmark Bolsa Index is gaining 124.87 points, or 0.75%, while Argentina's Merval Index is edging up 2.75 points, or 0.17%.
Brazilian stocks are somewhat higher, as investors take a cautious stance ahead of next week's release of third-quarter economic growth figures.
The average forecast of economists polled by Dow Jones Newswires is for gross domestic product to expand 2% in the third quarter, much slower than the second quarter's 3.9% growth.
Some investors fear the economy may be slowing in conjunction with rising inflation, potentially leading the central bank to lower interest rates at a slower pace than previously expected.
Fueling concerns about inflation, the Brazilian Census Bureau, or IBGE, said today that Brazil's inflation as measured in the IPCA-15 accelerated to 0.78% in the October 12 to November 14 period, up from 0.56% in the September 13 to October 11 period.
As such, inflation in the 12 months through mid- November rose to 6.36% from 6.21% through mid-October, exceeding the central banks 5.1% inflation target for full-year 2005.
On a more upbeat note, Sao Paulo's Fipe research institute said today that consumer price inflation in São Paulo rose 0.44% in the four weeks ended November 23, a deceleration from the 0.53% growth in the four weeks ended November 15.
On the corporate front, select steel shares are dipping amid concerns about lower steel prices after China Steel Corp. said yesterday that it will reduce domestic steel prices by 11% in the first quarter of 2006. Baoshan Iron and Steel announced a similar decision two days earlier.
Shares of aircraft maker Embraer are active, after the company said today that it suspended operations of its Chinese joint venture Harbin Embraer Aircraft Industry Co. Ltd. due to the contamination of a river in Harbin city.
Elsewhere, Mexican shares are climbing after the Bank of Mexico eased its monetary policy further and offered an upbeat economic assessment. The bank said it would allow interest rates to fall as much as 25 basis points, which puts the current floor at 8.75%. It was the fourth such move in as many months.
In its accompanying statement, the bank gave a more positive assessment of the global economy, saying it "continues to expand significantly, showing a great resistance to the negative impact of high energy prices." The bank also noted that the U.S. economy is growing faster than expected, while inflation is easing.
Adding to positive sentiment, data released yesterday showed annual inflation moved closer to the central bank's target of 3%. The annual rate dropped to a record low of 3.02% during the first two weeks of November, following a sizeable decline in October to 3.05%.
Argentine shares are edging up, as recent economic data showing solid growth and production continue to offset concerns over rising inflation. Late yesterday, the Argentine central bank's latest weekly survey of economists showed that the average forecast for full-year CPI has risen to 11.8% from 11.5%. The 11.8% estimate is the highest to date.
Thomson Financial Corporate Group – www.thomsonfinancial.com
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