Ibovespa Leads Global Gains as Real Climbs on Political Outlook

  • State-controlled Petrobras rises to highest since November
  • President's main ally party mulls to leave the government

The Ibovespa rallied the most in the world and Brazil’s currency advanced on speculation President Dilma Rousseff is close to losing the support of her administration’s most important allied political party, increasing the chances there will be a change in government.

State-controlled oil producer Petroleo Brasileiro SA rose even as oil prices fell. Lender Banco Bradesco SA contributed the most to the benchmark equity gauge’s advance. Air carrier Gol Linhas Aereas Inteligentes SA rose 6.1 percent after saying it hired PJT Partners Inc. for advice on how to strengthen the company’s capital structure, liquidity and debt profile.

Brazilian assets have rallied this year as investors and analysts increasingly see a change in government as Brazil’s best hope for emerging from its worst recession in more than a century. A corruption scandal involving Petrobras and some of Brazil’s top politicians has left Rousseff facing street demonstrations and record low popularity. Vice President Michel Temer’s party, known as PMDB, meets Tuesday to decide on whether to leave the ruling coalition, a move that could make it more likely that Rousseff is impeached.

"There’s a lot of expectation regarding the impeachment," Rafael Ohmachi, an analyst at the brokerage Guide Investimentos, said from Sao Paulo. "Politics should continue to be the main driver for Brazilian stocks, so we expect a lot of volatility this week."

The Ibovespa added 2.4 percent to 50,838.23 on Monday in Sao Paulo. Petrobras advanced to its highest level in four months. Itau and Bradesco climbed at least 2.5 percent.

The real added 1.4 percent to 3.6273, posting the biggest advance among 16 major currencies tracked by Bloomberg. It’s gained 9.3 percent this year, the most in the world.

"The prospect of PMDB and other parties splitting with the government is boosting Brazilian assets today," said Eduardo Longo, who helps manage 23 billion reais as a fixed-income portfolio manager at Quantitas, in Porto Alegre, Brazil.

Brazil’s central bank didn’t call an auction of foreign-exchange reverse swap contracts for Monday after having done so every day last week. The auctions are equivalent to the bank buying dollars in the futures market. The central bank won’t hold a rollover auction, after cutting size of the offer during last sessions.

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, fell 0.09 percentage point to to 13.74 percent.

Economists covering Brazil forecast the country’s gross domestic product will contract 3.66 percent in 2016, according to a weekly survey by the central bank released Monday. Last year, Latin America’s biggest economy shrank 3.8 percent.

"The stock market and currency have reacted positively to signs that the government’s time may be limited," said Mark Haefele, global chief investment officer at UBS Wealth Management. "For any rally to be sustained, Brazil will need to find a credible leader able to bring together the dissenting voices and put forward a reform agenda."

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