By Carla Mozee
Mexican and Brazilian stocks remained in the red Wednesday after
the U.S. Federal Reserve said it's seeing signs of economic
recovery and, as expected, left interest rates unchanged.
Losses among Brazilian and Mexican equities deepened as Wall
Street gave back its gains. Declines in the regional markets had
eased shortly after the Fed said that economic activity has "picked
up" with improved conditions in the financial markets.
The Federal Open Market Committee said it will keep rates near
zero for an extended amount of time, and, as many expected,
extended its purchase of mortgage-backed securities and agency debt
into the first quarter of 2010.
"Since the Fed sees the economy strengthening, that should
provide an extra boost to risk appetite, and that should play as
positive back-up for Latin America if there's less concern about
growth in the U.S. in the short-term," said Bertrand Delgado, a
senior economist at RGE Monitor in New York.
However, "the risks for the medium-term still exist," he
said.
The Fed in its statement repeated that it "continues to
anticipate that economic conditions are likely to warrant
exceptionally low levels of the federal funds rate for an extended
period."
On Wall Street, U.S. stocks rose before they reversed course.
The S&P 500 Index (SPX) fell 0.5%. The Dow Jones Industrial
Average (DJI) also fell 0.5% to 9,782.
Brazil's Bovespa, which has hit a series of fresh highs for the
year in recent sessions, was down 1.1% at 60,802. It closed Tuesday
at its best level in more than 14 months following a decision by
Moody's Investors Service to lift Brazil's debt rating to
investment grade.
Communication and retail stocks weighed on the index in São
Paulo, with shares of wireless services provider Tim Participacoes
(TSU) down 3.5%, and department-stores operator Lojas Renner off by
3.2%. Market heavyweight and oil giant Petrobras (PBR) dropped 1.1%
and miner Vale (RIO) shed 0.7%.
Losses accelerated in Mexico City, with the IPC down 1.7% at
29,000 and cruising toward its fourth consecutive loss. Shares of
market heavyweight America Movil (AMX) stumbled 3.1% and Wal-Mart
de Mexico (WMMVY) fell 3.4%.
RBC Capital earlier Wednesday said Standard & Poor's lead
analyst covering Mexico "struck a negative-leaning tone late
Tuesday, suggesting that President Calderon is likely to have
difficulty persuading the opposition-PRI to support his fiscal and
economic proposals."
S&P analyst Lisa Schineller was quoted as saying in an
interview with Bloomberg News that administrations nearing the end
of their terms "lose momentum."
Argentina's Merval on Wednesday slipped 2 points to 2,045.
But Chile's IPSA outperformed, rising 1%, with shares of
Empresas CMPC up 9%. The pulp and paper producer signed a
memorandum of agreement to purchase a unit of Brazil's Aracruz for
about $1.43 billion. In São Paulo, shares of Aracruz (ARA) were
last unchanged.
Making the grade
Brazil's currency continued to strengthen on Wednesday, trading
at 1.784 reals per U.S. dollar from Tuesday's yearly high at 1.798
reals per dollar after Moody's upgrade of its ratings on Brazil's
foreign- and local-currency government bonds to Baa3, or the
agency's lowest level of investment grade. Moody's also said its
outlook is positive.
Improvement in the government-debt structure was "an important
contributing factor" to the upgrade, said Mauro Leos, Moody's
regional credit officer for Latin America, in a statement.
Brazil's currency is up nearly 30% on a year-to-date basis,
reflecting fundamental developments, noted Brown Brothers Harriman
senior currency analyst Win Thin in a note to clients
Wednesday.
The country is also likely to be upgraded again next year, wrote
Thin.
"While the move brings Moody's into line with S&P's and
Fitch's BBB- rating, the upgrade will open up an investor class
that is prohibited from investing in split-rated investment grade
countries," he said.
Along with Brazil, Chile and Mexico are the only countries in
Latin America to have unified investment grades from the three
ratings agencies, said Thin.
In ETF action, the iShares MSCI Brazil Index (EWZ) fell 1.6%,
and the iShares MSCI Mexico Index Fund (EWW) lost 2.4%.