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Viva South America
Thursday, October 30th, 2008Look to Latin America to lead the way!
LOS ANGELES (MarketWatch) — Major Latin American stock markets rose Wednesday, advancing as prices for natural resources surged ahead of the U.S. Federal Reserve’s widely expected decision to cut its overnight lending rate.
Brazilian and Mexican shares also found support late in their sessions after the Federal Reserve said it will open currency swap lines with the countries’ central banks.
Brazil’s Bovespa index closed up 4.4.% at 34,845.21. The benchmark soared 13% on Wednesday when investors globally launched a buying spree.
Mexico’s IPC rose 2.8% to 19,157.33 and Chile’s IPSA rose 2% to 2,436.52.
The markets slightly pared gains shortly after the Fed opted to cut the key rate by 50 basis points to 1% and the discount rate to 1.25%.
“The markets began hesitating as the rate cut was confirmed, but the rate cut is positive,” because lower rates can help ease credit constraints in the U.S., said Alfredo Coutino, senior Latin American economist at Moody’s Economy.com,
“It’s going to be more attractive [for investors] to stay [in Latin America] since they can get half a percentage point more in Latin America than in the U.S.,” he said, noting that interest-rate differentials have eased as a driving force in the markets due to increased worries about credit conditions and sluggish economic growth.
Banking stocks finished higher. Banco Itau (ITU:
10.19, +1.30, +14.6%) in Brazil climbed 13% and Banorte (MX:GFNORTEO: news, chart, profile) in Mexico climbed 8.5%.
Late Wednesday, in a widely expected move, the central bank in Brazil decided to leave its key interest rate steady at 13.75%. It marked the first time since April that the monetary policy committee hasn’t raised interest rates as part of its campaign to dampen inflationary pressures.
The central bank has intervened on the foreign-exchange market to help curb losses in its currency, but the decision to keep the Selic rate steady indicated that rate policymakers have, for now, have set aside their concerns about inflation stemming its currency defense to focus on risks to economic growth amid global financial turmoil.
Fed swap lines
The Federal Reserve will lend up to $120 billion in dollars to the central banks of Brazil, Korea, Mexico and Singapore to provide additional dollar liquidity, the Fed announced Wednesday. The swap lines are the first established with central banks in emerging markets. The swap facilities will amount to $30 billion each to Brazil and Mexico, and will expire on April 30, 2009.
“It adds those countries central banks to its ‘buddy list’ so they can help alleviate the shortage of dollars in domestic markets using forward currency instruments,” wrote Andrew Wilkinson, senior market analyst at Interactive Brokers, in emailed comments.
“The move will likely make speculators think more closely before shorting those currencies. However, what you have to bear in mind is that no currency specifically has been under attack.
Around the indexes, shares of market heavyweights Petroleo Brasileiro (PBR:
24.21, +1.71, +7.6%) and Companhia Vale do Rio Doce (RIO:
12.42, +0.62, +5.3%) tracked a broad rally in commodity prices as investors bet on - and received — a 50 basis-points reduction in the federal funds lending rate to 1%. The Fed also cut the discount rate to 1.25%.
The possibility of an interest-rate cut pulled the U.S. dollar lower against its key rivals, supporting dollar-dominated commodities such oil and gold.
Petrobras shares rose 6.7% and Vale shares gained 2.4%.
Crude-oil prices jumped as much as 8%, their highest percentage advance since June.
The Reuters/Jefferies CRB Index (CRB:
274.34, +15.32, +5.9%) , a benchmark gauging the prices of major commodities, rose 5.9% to 274.39. Copper prices surged 12%. Silver gained more than 11% and gold futures rose 3.3%. See full story.
In Mexico, Walmex (WMMVY:
27.00, +4.50, +20.0%) pared gains and ended 0.3% higher. Cement maker Cemex (CX:
6.97, +0.48, +7.4%) jumped rose 5.9%, and copper miner Grupo Mexico picked up 3.2%.
Shares of volume leader and wireless services provider America Movil (AMX:
28.23, +0.20, +0.7%) fell 2.4%. The company’s third-quarter results were below expectations. Its profit rose 32% to 12.4 billion pesos on a 9.8% rise in revenue to 85.3 billion pesos. The company signed up 7.3 million new subscribers, with most of its new customers based in Brazil.
Argentina’s Merval finished a volatile session higher, by 2.7% at 917.91 as local, private pension funds sold foreign-based holdings. The peso also moved off its lowest levels of the session to end at 3.369 per U.S. dollar after the central bank offered to sell about $1 billion.
The pension funds were ordered to repatriate $500 million from Brazil, and the money is set to arrive Thursday.
think of me…my passport is ready. 