By Carla Mozee
Brazilian equities dropped nearly 5% Thursday, sliding alongside
regional equity markets, as investors dumped commodities and
resource-related stocks as their fears about sovereign-debt
troubles in Europe ramped up.
Commodity prices were hit as the U.S. dollar reached a
seven-month high against the euro, pushing the dollar index (DXY)
up 0.6% to 79.85.
"The sell-off is simply to a reaction to the stronger U.S.
dollar because of renewed fears of sovereign debt problems in
Europe, in connection with Greece and also in connection with
Portugal and Spain," said Patricia Mohr, a commodity market
specialist at Scotiabank Group in Toronto.
A stronger U.S. currency typically pressures oil, gold and other
dollar-denominated commodities as it makes them more expensive for
holders of other currencies.
The commodity-rich Bovespa index in Brazil slid 4.7% to
63,934.01, the steepest percentage decline since March 2009. None
of the 65 stocks listed on the index produced price gains in
Thursday's session. The Bovespa is now down 6.8% for the year.
Shares of state-run oil giant Petrobras (PBR), slumped 5.1% as
oil prices dropped nearly 5% to $72.85 a barrel. It was the worst
one-day drop in crude-oil prices in more than six months.
In Portugal on Thursday, the cost of insuring the nation's debt
against default soared to an all-time high. On Wednesday, the
European Commission gave cautious approval of Greece's plan to
slash its budget deficit over the next three years.
Back in Latin America, Argentina's Merval index fell 3.7% to
2,248.83 as local shares of Petrobras fell 5.4% and steel-tubes
maker Tenaris (TS) shares lost 3.2%. Banking stocks were also hit,
led by Banco Macro (BMA), down 6.6%, a day after Argentina's
president unexpectedly nominated a political ally to head the
country's central bank.
Mexico's IPC index finished with a 2.2% loss at 30,603.71, with
shares of copper miner Grupo Mexico down 3.3% and mining concern
Industrias Penoles down 1.4%. Copper for March delivery fell 3.1%
to end at $2.88 a pound. Gold for April delivery slumped 4.4% to
finish at $1,063 an ounce at the New York Mercantile Exchange.
Banking firm Grupo Financiero Inbursa stood as the lone advancer
among the IPC's 35 listed stocks. The shares finished up 0.9%.
Mexico's IPC has lost 4.7% since the start of the year.
Meanwhile, shares of Telefonos de Mexico (TMX) stumbled 5% on
Thursday after the fixed-line operator's fourth-quarter results
left investors disappointed.
The results were "mediocre," wrote Rizwan Ali, head of research
at Deutsche Bank, in a note to clients. Telmex's earnings before
interest, taxes, depreciation and amortization of $12.2 billion
pesos was 7.3% below the broker's forecast, resulting in margin of
41.2% compared with its estimate of 44.1%.
"Despite revenues in-line with our forecasts, 5% lower
interconnection expenses were not able to offset 12% higher cost of
sales and services," wrote Ali.
In Santiago, Chile's IPSA fell 2% to 3,774.20.
Among exchange-traded funds, the iShares MSCI Mexico Index fund
(EWW) closed 3.8% lower and the iShares MSCI Chile Investable index
fund (ECH) gave up 4.2%.
Brazil rate hike in March?
As equities in Brazil slid, yields on key interest-rate futures
dropped after the minutes from last month's meeting of monetary
policymakers pointed to the possibility that a rate increase may be
issued at the next meeting.
The minutes were "hawkish" and it appears that the "risks are
now tilting in favor of a March start to the tightening cycle," Win
Thin, senior currency strategist at Brown Brothers Harriman, wrote
in an note Thursday.
"It's not a done deal, however, as the bank noted that its
inflation forecasts are still close to the 4.5% target and that it
would continue to monitor inflation and inflation expectations
going forward," he wrote.
The central bank's most recent survey of economists showed the
market had expected the Selic rate to end the year at 11.25%. The
rate currently stands at a historically low level at 8.75%.
"However, in light of the [January] minutes, we would expect
those expectations to rise next week. If no hike in March, then we
think an April move is almost certain," wrote Thin.
The central bank's meeting minutes arrived a day before the
release of Brazil's benchmark inflation index for January.
Inflation ended at 4.31% in 2009, according the IBGE statistics
agency.
Itau Unibanco in a note to clients said the central bank's
meeting minutes spoke "loudly" about inflation risks, and
reinforced its previous call for a rate hike at the policymaker's
meeting on March 17.
"No more talk of a slowly closing output gap. No more talk of
benign inflation expectations. No more easy 2010 inflation. And no
change in its baseline view of the fiscal outlook," wrote Guilherme
da Nóbrega, chief economist at Itau Unibanco.
The iShares MSCI Brazil Index Fund (EWZ) fell 6% on
Thursday.