Brazil’s Real Gains and Stocks Advance on Political Outlook

  • Senate to vote on impeachment of suspended President Rousseff
  • Brazil’s retail sales unexpectedly rise as confidence improves

Brazil’s real and stocks rose amid speculation the senate will vote to move ahead with the impeachment of suspended President Dilma Rousseff, paving the way for a new government to pull the country out of recession.

The real rose 0.9 percent to 3.1454 per dollar Tuesday in Sao Paulo, extending this year’s world-beating advance to 26 percent. The Ibovespa stock benchmark advanced 0.1 percent to 57,689.41, with steelmakers rallying after iron ore reached a three-month high.

The senate is scheduled to start voting Tuesday night on whether to try Rousseff on charges of breaking the budget law. While she is widely expected to lose the ballot, which requires only a simple majority, analysts will be watching the tally for signs of unease in Acting President Michel Temer’s coalition over allegations linking him to illegal political financing. Two-thirds of the Senate would have to vote against Rousseff in the final trial in late August or early September to prevent her from returning to office.

"Investors expects government to act more definitively after the final impeachment, helping the reform process develop on a faster track," said Solange Srour, the chief economist at ARX Investimentos.

The senate vote comes just days after a magazine report said Temer and two of his cabinet members were accused of receiving illegal campaign donations, tarnishing the image of a new government that investors had bet would pull the nation out of economic and political crisis. All three deny wrongdoing and say financing was legal.

Brazil’s stocks and currency have surged this year amid optimism that Temer can trim a budget deficit and restore confidence in an ailing economy. His economic team is seeking a $6 billion spending freeze as ministers and the president debate where cuts should fall.

Lawmakers in the lower house are expected to vote Tuesday on a bill governing state debt limits, also seen as a litmus test of congressional support for Temer’s efforts to strengthen government finances. 

"Investors continue to give credibility to Temer’s government even after the accusations," said Alvaro Bandeira, the chief economist at the brokerage Modalmais, from Rio de Janeiro. "Temer’s image was little hurt."

Usinas Siderurgicas de Minas Gerais SA led a rally in steelmakers, climbing 3.3 percent. Localiza Rent a Car SA rose 2 percent to a record high after a report showed Brazil’s retail sales unexpectedly increased in June amid higher consumer confidence.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, dropped 0.09 percentage point to 12.65 percent.

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