- Financial stocks tumble as economists cut Brazil outlook
- Currency slumps as speculation for a government change eases
Brazil’s benchmark stock index dropped the most in the world and the real led losses among major currencies as commodity prices fell and economists forecast a steeper contraction for Latin America’s largest economy.
Oil producer Petroleo Brasileiro SA fell along with ethanol producers after reports the state-controlled company may reduce fuel prices. Petrobras, as it’s known, and Itau Unibanco Holding SA contributed the most to the decline in the Ibovespa.
The outlook for companies that depend on domestic demand worsened after analysts covering Brazil predicted the economy will shrink 3.73 percent this year, worse than the 3.66 percent forecast in a previous poll. Sentiment also soured after President Dilma Rousseff vowed never to resign, casting doubt on a quick change in government that some analysts say is needed to pull the country out of its worst recession in a century.
"Investors are betting that President Dilma Rousseff will be impeached, but the process may not be easy or short," Raphael Figueredo, an analyst at brokerage Clear Corretora, said from Sao Paulo. "A change is seen as necessary for the economy to recover."
The Ibovespa tumbled 3.5 percent to 48,779.98 in Sao Paulo, the worst performance among 93 stock benchmarks tracked by Bloomberg. Petrobras lost 9.3 percent and Itau sank 3.5 percent. Energy stocks dropped the most among 10 industry groups on the MSCI Brazil Index.
The drop in commodity prices helped to push the real lower, with the Brazilian currency weakening 1.9 percent to 3.6238 per dollar, the most among the world’s 16 most-traded currencies. Oil slid after Saudi Arabia’s deputy crown prince said the country would freeze output only if Iran does too, casting doubt on a deal between the two countries.
The real’s 9.4 percent gain this year is the biggest among 150 currencies worldwide, bolstered by speculation that Rousseff will lose her battle to stay in office. Brazilian traders have been betting that a new government would end the political paralysis that has hampered efforts to respond to the worst recession in decades.
"Most emerging-market currencies are down today due to the small correction in commodity prices -- the real is no exception and is also losing steam," said Arnaud Masset, an analyst at Swissquote Bank SA in Gland, Switzerland. "The real has gained a lot this year with the market viewing the current political mess in a favorable light as it could potentially result in a political shake-up that might unlock the situation."
Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.025 percent to 13.805 percent.