Brazil Stocks, Currency Top Global Gains After Cabinet Shuffle

  • President cut 8 ministries, salaries in bid to shore up budget
  • Cabinet shuffle offsets gloomy jobs report out of U.S.

Brazilian stocks posted the biggest gains among major markets after President Dilma Rousseff reshuffled her cabinet as she tries to rebuild support in Congress and shore up the budget. The real surged, ending a six-week losing streak.

Brazil will eliminate eight ministries and reduce remaining ministers’ salaries by 10 percent, among other cuts, Rousseff said Friday in Brasilia. The government is struggling to tame a budget deficit as it seeks to avoid another credit-rating downgrade after Standard & Poor’s cut the country to junk last month.

"We don’t know if the changes will really help the government to win more Congressional support, but it’s something," said Alexandre Povoa, a money manager at Canepa Asset Management, which oversees 230 million reais ($57.9 million) of investments. "The way things were before was just unsustainable. The sentiment among investors now is that the measures are gaining Rousseff a little more time."

The Ibovespa, which had lost as much as 0.8 percent before the announcement, reversed its decline and surged the most since November as it climbed 3.8 percent to 47,033.46. The gauge today was the world’s best performer in dollar terms among major stock indexes. It posted a weekly advance of 4.9 percent, the most since April. The real climbed 1.9 percent, more than any other major currency, to 3.933 per dollar.

As part of the shakeup, Rousseff is giving members of the Brazilian Democratic Movement Party authority over seven ministries, essentially ceding greater control of her government in a bid to bolster support among allies and fend off threats of an impeachment.

State-controlled oil producer Petroleo Brasileiro SA, which is tangled up in Brazil’s biggest-ever corruption scandal, was among the biggest contributors to the stock index’s advance. Lender Itau Unibanco Holding SA, Latin America’s biggest bank, rose the most in a month.

Rousseff’s announcement offset concern that a global slowdown and financial market turmoil are rippling through the world’s largest economy after a weaker-than-forecast U.S. jobs report.

“The U.S. economy is weak and with China, Japan and possibly the Eurozone slowing, the U.S. was the one driving global growth," said Win Thin, the head of emerging-markets strategy at Brown Brothers Harriman & Co.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, dropped 0.32 percentage point to 15.45 percent.

The real has lost 32 percent this year as Brazil’s economy heads toward its longest recession since the 1930s. Gross domestic product will fall 2.8 percent this year and contract again in 2016, according to a central bank survey of economists.

Political turmoil has shattered confidence in Brazil so investors are closely monitoring any development, according to Jason Vieira, chief economist at Infinity Asset Management.

"That’s hurting the economy since it makes entrepreneurs and consumers more cautious," Vieira said from Sao Paulo. "Uncertainties have to diminish for investors to be able to make decisions. We expect more volatility until the scenario gets clearer."

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