By Carla Mozee
Brazilian stocks moved lower Friday, with investors continuing
to bet that next week's central bank meeting will result in the
country's first interest-rate hike in more than a year.
Brazil's Bovespa index fell 0.2% to 69,153 and has spent a
portion of the session oscillating between advances and declines.
The index is set to be slightly lower for the week, which was
shortened by a holiday.
Shares of interest-rate sensitive finance and real estate stocks
struggled with losses. Shares of PDG Realty (PDGRY) were off 1.5%.
Home builder Gafisa (GFA) shed 0.6% while privately run banking
firm Itau Unibanco (ITUB) fell 1% and rival Banco Bradesco (BBD)
lost 0.9%.
Ahead of next week's central bank meeting, a report showed that
consumer prices rose 0.76% this month through April 22, according
to the Getulio Vargas Foundation, whose March index reading showed
consumer prices rose 0.8%.
Yields on Brazilian interest-rate future contracts rose
following the report as the results were in line with other data
showing rising inflationary pressures.
Strategists have been raising expectations that the first
rate-tightening cycle since March 2008 to September 2008 will start
next week as policy makers work to stave off inflation and moderate
the accelerating pace of economic activity. Policy makers started
easing the key Selic rate in January 2009.
"We agree that the risks the economy is overheating are higher
today than they were at the end of [the first quarter of 2010],"
wrote economist Marcelo Salomon at Barclays Capital Research on
Friday in a note outlining the broker's revision of its view on
Brazil's monetary-policy tightening cycle. The broker now expects
four rate hikes between April and September for a total of 300
basis points.
The Selic was cut in July 2009 to 8.75%, a historical low. The
latest rate decision will be released on Wednesday.
The recovery process still has more space to run before hitting
"the same stressed demand conditions as in the beginning of the
previous tightening cycle," wrote Salomon. "We are not yet at the
same place we were two years ago, but the odds that we are moving
in that direction faster than we had expected are rising."
On the foreign-exchange market, Brazil's real slightly gained
ground, finding support after Greece formally requested financial
help from the International Monetary Fund and the European Union.
The real recently traded at 1.762 per dollar compared with
Thursday's level at 1.765.
Greece's debt woes have prompted some investors throughout the
year to step back from assets they perceive as risky, such as those
from emerging markets.
Elsewhere in Sao Paulo's equity market, shares of Telesp (TSP)
were down 0.8% after J.P. Morgan downgraded the company's rating on
the fixed-line operator to underweight, citing in part the stock's
"unattractive valuation." Analyst Andre Baggio in a note to clients
wrote that with an 11.6% free cash-flow yield, Telesp trades in
line with its European peers "which have lower cost of
capital."
The yield is only slightly better than that of Mexican wireless
giant America Movil (AMX) and Brazilian mobile services provider
Vivo (VIV), "which have a much better growth outlook," he wrote,
adding that Telesp is facing more intense competition from mobile
and cable companies as well as telecom operator GVT Holding.
Mexico's IPC rose 0.2% to 33,713. Argentina's Merval rose 2
points to 2,460 and Chile's IPSA gained 0.1% to 3,838.