Petrobras Slumps With Oil as Ibovespa Falls on Budget Pessimism

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Oil producer Petroleo Brasileiro SA slumped with crude prices as the Ibovespa dropped on concern mounting political tension will make it harder for the government to trim deficits and keep the country’s credit rating.

Petrobras, as the state-controlled driller is known, contributed the most to the gauge’s decline as a drop in crude dimmed prospects for the company’s offshore investments.

Fifty-nine of 66 stocks on the equity gauge dropped after Eduardo Cunha, the head of Brazil’s lower house, said he is breaking with the ruling coalition. That comes after a series of defeats in congress over the past month for President Dilma Rousseff as lawmakers frustrated her efforts to contain spending and raise taxes as she seeks to preserve Brazil’s investment-grade credit rating. A lower grade could discourage investment in the country and raise borrowing costs.

“There’s a lot of uncertainty regarding Petrobras’s future, so investors are still cautious regarding the company,” said Vitor Suzaki, an analyst at brokerage Lerosa Investimentos in Sao Paulo. “The mood in the market today is very negative because of the political tension too.”

The Ibovespa fell 1.4 percent to 52,341.80 Friday in Sao Paulo, leaving the gauge down 0.5 percent this week.

Petrobras slumped 4.4 percent to 11.40 reais as crude declined toward $50 a barrel in New York. The Brazilian producer, which is at the center of an unprecedented corruption probe in Brazil and accounts for about 10 percent of the benchmark stock index’s weighting, has said investments in offshore production are economically viable with crude above $45. Fibria Celulose SA and Suzano Papel & Celulose SA, Brazil’s two biggest pulp producers, both slumped at least 4 percent.

Economic Deceleration

The Ibovespa also declined as data showed the Brazilian economy is weaker than estimated.

The economic activity seasonally-adjusted index, a proxy for gross domestic product, rose 0.03 percent in May from the prior month after dropping a revised 0.88 percent in April, the central bank said Friday. The median estimate of 29 economists surveyed by Bloomberg was for an increase of 0.2 percent.

Furniture and electronics retailer Via Varejo SA led a rout among companies on the MSCI Brazil Index that depend on domestic demand. For-profit college manager Estacio Participacoes SA declined the most in three weeks.

As the Brazilian currency lost value against the dollar because of the political tension, planemaker Embraer SA climbed as a weaker currency improved its revenue outlook. The company gets more that 90 percent of its revenue from exports.

Trading volume of equities in Sao Paulo was 5 billion reais ($1.57 billion), data compiled by Bloomberg show. That compares with a daily average of 6.75 billion reais this year, according to the exchange.

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