Brazil’s Real Rises With Emerging Markets as Commodities Advance

Is Now the Time to Buy in Brazil?
  • Commodity producers lead Ibovespa’s gains as Petrobras rallies
  • Real best performer worldwide after Russian ruble this year

Brazil’s real joined gains in emerging markets on Monday as commodities advanced, boosting the outlook for the country’s raw-materials exports. The Ibovespa was little changed.

The currency strengthened 0.9 percent to 3.5014 per dollar on Monday as metals and crude rallied. The Bloomberg Commodity Index added 0.8 percent, improving inflows prospects for a country where half of exports are of raw materials. The Ibovespa erased gains and ended little changed at 51,802.92 after earlier gaining as much as 1 percent. Producers account for 22 percent of the index’s weighting.

Seven of the 10 best performers on the equity gauge Monday were related to the raw-material industry, with oil giant Petroleo Brasileiro SA and miner Vale SA among the best performers. The rally outweighed a central bank survey showing analysts predict further contraction for Latin America’s largest economy, with consumer stocks including retailer Cia. Brasileira de Distribuicao SA slumping.

“The commodity move today is outweighing news regarding the economy as investors await measures from the new government to address the fiscal deficit and the recession,” said Jason Vieira, the chief economist at Infinity Asset Management in Sao Paulo.

Traders have pushed up the value of Brazilian shares and the real this year on speculation that a new administration would pave the way for measures to revive the economy and curb a ballooning budget deficit. Regaining investors’ trust is a key goal for Michel Temer, who assumed the presidency on May 12 after a Senate vote that brought Dilma Rousseff closer to impeachment and forced her to step down.

Investors are now waiting for Temer to announce appointments to his economic team. Brazil’s fiscal deficit this year is probably higher than the 96 billion reais ($27.5 billion) target, newly appointed Finance Minister Henrique Meirelles said Friday, adding that he is trying to evaluate the situation inherited from Rousseff. Meirelles delayed to Tuesday from Monday the announcement of the central bank president and his economic team, according to his press office.

"We’ve seen commodities influencing a lot Brazil’s markets lately," said Mike Moran, head of economic research for the Americas at Standard Chartered Bank. "Markets will focus on the likely composition of Temer’s cabinet when its confirmed. Meirelles is a strong name from a technical standpoint."

The real has climbed the most among about 150 currencies worldwide this year after Russia’s ruble, prompting the central bank to try to limit its appreciation by selling $41.8 billion in reverse swaps since March 21. The currency’s gain on Monday countered the trend for Latin American currencies, as the Chilean, Colombian and Mexican pesos all fell.

Economists forecast Brazil’s gross domestic product will shrink 3.88 percent this year, according to a weekly survey from the central bank. The previous forecast was for a contraction of 3.86 percent.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.025 percentage point to 12.60 percent.

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