Brazil Stocks Gain, Real Outperforms as Minutes Show Divided Fed

FOMC Preview: What’s Changed Since July Meeting?
  • Fed split on whether job market will continue to strengthen
  • Ibovespa index erases earlier decline, real pares drop

Brazilian stocks advanced while the real outperformed emerging-market peers after minutes from the Federal Reserve’s July meeting fueled bets that U.S. interest rates will stay lower for longer.

The benchmark Ibovespa equity index gained 0.8 percent to 59,323.83, erasing earlier declines of as much as 1.3 percent. The real slid 0.1 percent to 3.2064 per dollar on Wednesday after declining as much as 1 percent earlier. A gauge of emerging-market currencies tracked by Bloomberg weakened 0.2 percent.

Brazilian assets have benefited from investors’ search for higher returns in emerging markets. Rising interest rates in the world’s largest economy might diminish the allure of riskier investments. Brazil’s benchmark interest rate is 14.25 percent, compared with no more than 0.5 percent in the U.S. Minutes of the central bank’s last meeting showed officials were split last month on whether the job market would continue to strengthen and saw little risk of a marked pickup in inflation.

"The markets were expecting that Brazil would get stronger before a rate increase in the U.S.," Jason Vieira, chief economist at Infinity Asset Management, said from Sao Paulo. "The rebound may be delayed in that scenario."

State-owned oil producer Petroleo Brasileiro SA and lenders Itau Unibanco SA and Banco Bradesco SA contributed the most to the Ibovespa’s advance. Petrobras rose for a third day, climbing 2.2 percent. Itau gained 1.3 percent to the highest since September 2014 while Bradesco advanced 1.1 percent.

The real is the world’s best-performing currency this year while the Ibovespa has gained the most among major equity benchmarks on wagers a new government will revive growth.

The real has surged 24 percent in 2016 while the Ibovespa has advanced 66 percent in dollar terms. Suspended President Dilma Rousseff said in a speech on Tuesday that the Senate should end efforts to impeach her. Investors said her comments don’t change the broad expectation that the impeachment will be approved.

Meanwhile, a Supreme Court justice has authorized an investigation into Rousseff and her predecessor on allegations of obstruction of justice, newspaper Estado de Sao Paulo reported Tuesday. Teori Zavascki, the judge in charge of legal proceedings related to the corruption probe known as Car Wash, made the decision on Monday, the newspaper reported, citing unidentified people with knowledge of the proceedings. The Supreme Court press office declined to comment when contacted by Bloomberg, saying the case is confidential.

Brazilian swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.01 percentage point to 12.71 percent.

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