Brazil Commodities Pushing Economy

Brazil Commodities

Stocks in Brazil, which are primarily fueled by the commodity sector, enjoyed a strong push, as oil and metals helped drive up the prices of producers and investors hope this is the beginning of a rebound in the Brazilian economy.

Vale SA, the world’s largest iron ore miner, climbed more than 7 percent after Bank of America Corp. upgraded the stock on valuations and higher ore prices. Tam SA and Gol Linhas Aereas Inteligentes SA, Brazil’s two biggest airlines, increased the most in the Bovespa index on hopes demand will increase. Rossi Residencial SA led gains for homebuilders after competitor MRV Engenharia & Participacoes SA recorded record contracted sales.

Industrial production in the U.S., the world’s biggest economy, had the smallest fall in eight months, the Federal Reserve said today. A New York regional factory gauge showed the smallest contraction in more than a year.

Vale Upgrade

Vale increased by the highest in two months, adding 7.2 percent to 29.84 reais, after it was raised to “buy” from “neutral” at Bank of America.

“Since March, the stock has been a big underperformer and we now believe investors are overly pessimistic on the name,” analysts led by Felipe Hirai wrote. “Vale’s current share price is not reflecting a stronger iron ore market scenario.”

The Bloomberg Base Metals 3-Month Price Commodity Index gained 3.5 percent to 156.86. Crude oil rose as much as 4.1 percent, the most in six weeks, after a government report showed a bigger-than-forecast drop in U.S. crude inventories as refineries increased operating rates.

The Bovespa has gained 36 percent in 2009 on speculation a rebound in commodity prices and falling interest rates will bolster economic growth. The measure had tumbled 10 percent from this year’s high on June 1 through yesterday on speculation the global recession will be prolonged, reducing commodity demand.

Grupo Elektra SA, the Mexican electronics retailer controlled by billionaire Ricardo Salinas, led the gains in the Bolsa index after Intel Corp. forecast sales that beat analysts’ estimates.

Grupo Financiero Banorte, Mexico’s largest publicly traded lender, rose. Mexico’s central bank is expected to cut interest rates by 25 basis points.

The Bolsa is tracking the rise of U.S. stocks, which had fallen “too much too quickly,” Guilherme Paiva, Deutsche Bank’s Latin American equity strategist, said in an e-mail. “Plus it looks like Intel figures were driven by top-line growth rather than cost cutting,” he said.

The Bolsa has gained 49 percent since its March 2 low on signs that the worst of the recession is over.

Commodities continue to help lead the way for Brazil, but I would be very cautious on making decisons based on wishful thinking that the recession is over.

Brazil Commodities