Credit-Downgrade Threat Sinks Brazil Stocks as Petrobras Slumps

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The Ibovespa fell to an almost four-month low after Finance Minister Joaquim Levy said that a credit-rating downgrade by Moody’s Investors Service is more likely if Brazil doesn’t make economic adjustments.

Traders also pushed down the value of shares after newspaper Folha de S.Paulo reported Saturday that lower house President Eduardo Cunha would rebel against the administration by blocking a package of measures designed to shrink the budget deficit. His announcement heightened a political crisis that had already driven President Dilma Rousseff’s popularity to a record low and revived talks of impeachment.

“A credit downgrade is a big possibility as the government faces many hurdles in approving adjustment measures,” Hersz Ferman, an economist at brokerage Elite Corretora, said in a telephone interview from Rio de Janeiro. “Investors are already avoiding Brazilian assets because of that risk.”

Brazilian stocks had entered a bull market in April, after rallying more than 20 percent from this year’s low, amid speculation that government action would help shore up the budget and avoid a credit rating cut. The stock gauge has slid 11 percent from its 2015 peak amid forecasts the economy is headed toward the worst recession in 25 years.

The Ibovespa dropped 1.4 percent to 51,600.08 at the close of trading in Sao Paulo. Petroleo Brasileiro SA, the oil producer at the center of Brazil’s largest corruption probe, contributed the most to the gauge’s decline as oil slumped.

Investment Grade

President Rousseff has been reducing spending and increasing taxes to stave off another downgrade after Standard & Poor’s cut the nation’s rating to the cusp of junk in March 2014. Still, political challenges and concern over a deeper recession have added to bets that Brazil will lose its investment-grade status.

Moody’s, which met with officials in Brazil last week, has a negative outlook on Brazil’s Baa2 rating, the second-lowest level of investment grade. In an e-mailed statement Thursday, the New York-based company said its trip to Brazil was “a regular technical visit.”

Stocks also declined after a central bank survey with economists showed the outlook for activity this year worsened to a contraction of 1.7 percent. That compares with a 1.5 percent recession predicted last week.

Global Glut

Nine out of 10 groups in the MSCI Brazil index fell, led by energy companies. State-controlled Petrobras sank to the lowest since April. Crude slumped below $50 a barrel for the first time in more than three months on speculation that Iranian shipments will climb, extending a global glut. Petrobras has said its investments in oil and gas offshore production are economically viable with crude above $45.

Centrais Eletricas Brasileiras SA, the state-run utility known as Eletrobras, extended a four-day slide to 6.4 percent after Folha de S.Paulo reported the company may face legal action in the U.S. amid Brazil’s corruption probe.

Logistics operator Prumo Logistica SA rallied to the highest level this month after signing its second customer contract since June as part of a strategy to speed up operations under new owners EIG Global Energy Partners LLC.

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