Bovespa Futures Fluctuate as Oil Advance Offsets Rate Increase

Bovespa stock-index futures fluctuated after Brazil’s central bank raised its benchmark interest rate, offsetting an advance in oil prices.

Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled oil company, gained in U.S. trading. Steelmaker Cia. Siderurgica Nacional SA may be active after it said it increased its stake in rival Usinas Siderurgicas de Minas Gerais SA (USIM5) to 10.01 percent of common shares and 5.25 percent of preferred shares, a regulatory filing showed on April 20. International Meal Co. Holdings SA, the operator of restaurant chains, may be active after it was rated “buy” in new coverage at Banco Santander SA.

Bovespa stock-index futures were little changed at 68,065 at 8:18 a.m. New York time. The real strengthened 0.1 percent to 1.5645 per U.S. dollar. Brazilian markets had been closed since April 21 due to local holidays.

Policy makers, led by central bank President Alexandre Tombini, voted 5-2 to raise the Selic rate by a quarter point to 12 percent from 11.75 percent on April 20, as forecast by 15 of 58 analysts surveyed by Bloomberg. Forty-one analysts forecast a half-point increase and two predicted a pause. The bank said that two board members voted for a half-point increase.

‘Softer Pace’

The decision signals that the central bank “has shifted gears down, and will continue tightening but at a softer pace,” Marcelo Salomon, chief Brazil economist for Barclays Capital, said in a note to clients dated April 20. “Just as shifting gears down in a fast speed lane increases the risks of accidents, slowing the pace of tightening at a moment when inflation is rising and expectations are already disanchored could imply the need to hike even more.”

The rate rise was smaller than the 0.5 percentage-point increases the bank implemented at its January and March meetings. Policy makers are betting that a combination of higher borrowing costs, curbs on consumer lending and government spending cuts will be enough to bring inflation back to its target in 2012, according to the central bank’s quarterly inflation report, published March 30.

Economists covering Brazil increased their inflation forecast for the seventh straight week. Consumer prices will rise 6.34 percent in 2011, up from a week-earlier forecast of 6.29 percent, according to an April 20 survey of about 100 economists published today. Economists left unchanged their forecast for inflation next year at 5 percent, the survey showed.

Brazilian stocks were downgraded to “equal-weight” at Morgan Stanley and “underweight” at JPMorgan Chase & Co. on interest-rate increases and earnings.

Earnings Growth

Brazil’s earnings growth has fallen relative to other markets, Jonathan Garner, Morgan Stanley’s chief Asia and emerging-markets strategist in Hong Kong, and analysts wrote in a research note dated April 20. The U.S. bank previously had an “overweight” rating on Brazil.

Monetary tightening and uncertainties about Brazil’s economic policy are among the factors weighing on economic growth and earnings, Emy Shayo, a Sao Paulo-based Brazil equity strategist for JPMorgan, wrote in a report dated April 20.

Real estate company Helbor Empreendimentos SA (HBOR3) may move after it reported first-quarter contracted sales of 149.9 million reais, down 58 percent from 357.7 million reais in the same period last year, according to an April 20 regulatory filing. New projects fell 88 percent to 41.2 million reais in the quarter, the company said.

Laep Investments Ltd. (MILK11), the private-equity fund that controls Parmalat Brasil SA, may move after it said its board approved a 10-for-1 reverse share split, according to an April 20 regulatory filing.

Tam

Airline Tam SA (TAMM4) may be active after O Globo reported the company is “tracking” the possible sale of Tap SGPS SA. The Rio de Janeiro-based newspaper cited an interview with Tam Chief Executive Officer Marco Antonio Bologna. Tam is waiting for Portugal to announce the privatization of the airline, Bologna told the paper.

The Bovespa is down 3.2 percent this year through last week as homebuilders and banks declined on concern inflation will limit growth, overshadowing a rally in telecom shares.

The index trades at 10.7 times analysts’ earnings estimates, according to weekly data compiled by Bloomberg. That compares to a ratio of 13.8 for the Shanghai Composite Index, 7.5 for Russia’s Micex, and 15.5 for India’s Sensex.

Investors pulled 3.87 billion reais from Latin America’s biggest equity market this year through April 18, data from the Sao Paulo exchange show.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net

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