Ibovespa Posts Weekly Drop as Rating Concern Offsets Earnings

The Ibovespa posted its first weekly drop this month as concern that Brazil’s credit rating will be cut offset stronger-than-forecast quarterly results from companies including retailer Lojas Renner SA.

EDP - Energias do Brasil SA led a gauge of power utilities lower. Raw-material producers including steelmaker Cia. Siderurgica Nacional SA fell as a drop in commodities prices and a stronger real dimmed the outlook for sales outside Brazil. Retailer Lojas Renner climbed after reporting fourth-quarter sales that exceeded analysts’ estimates.

The Ibovespa lost 1.7 percent this week to 47,380.24 in Sao Paulo. It rose 0.2 percent today. The real gained 0.7 percent to 2.3530 per U.S. dollar at 5:32 p.m. after rising with Brazilian stocks yesterday on spending cuts announced by the government.

“There’s some good corporate news, some stocks rising after excessive losses, but nothing has changed,” Ari Santos, an equity trading manager at H. Commcor, said by phone from Sao Paulo. “The market is still weak, there’s no consistent rebound. It’s hard to believe the government will deliver on its promises and the rating agencies won’t downgrade Brazil.”

Finance Minister Guido Mantega announced yesterday a reduction of 44 billion reais, or 4.2 percent, in budgeted expenditures for this year as Brazil acts to shore up fiscal management that has sparked warnings of a rating downgrade.

Energias do Brasil

Lojas Renner gained 4.4 percent to 57.50 reais. The retailer’s fourth-quarter sales rose to 1.46 billion reais, beating an average estimate of 10 analysts for 1.41 billion reais, according to data compiled by Bloomberg. Sixteen of the 26 Ibovespa members that have posted earnings so far have exceeded estimates, according to data compiled by Bloomberg.

Energias do Brasil dropped 2.6 percent to 8.89 reais. Utilities risk having their earnings hurt by electricity rationing in Brazil as a drought in some parts of the country saps reservoirs feeding hydropower-generating dams, Morgan Stanley analysts including Arthur Carvalho wrote in a research note today.

“Authorities have worked hard to wean Brazil off of its over-reliance on hydro sources for energy,” the analysts wrote. “The problem, however, is that the alternative, thermal energy, is costly.”

CSN, as Cia. Siderurgica is known, dropped 1.1 percent to 11.31 reais.

The Ibovespa has tumbled 16 percent from a bull-market high on Oct. 22 as inflation exceeded policy makers’ target and concern mounted that higher government spending will lead to a reduction in the country’s credit rating.

Trading volume of stocks in Sao Paulo today was 5.60 billion reais, according to data compiled by Bloomberg. That compares with a daily average of 6.48 billion reais this year, according to data from the exchange.

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