Brazil's Real, Ibovespa Lead World Losses Amid Political Crisis

  • Court rules against lower house head's plan to oust Rousseff
  • Data showing slowdown in Chinese imports add to pessimism

Brazil’s real and stocks led declines among the world’s biggest markets as heightened political turmoil and data showing weakness in the nation’s top trading partner added to concern Latin America’s largest economy will falter.

The real dropped the most among the world’s 16 major currencies, and the Ibovespa halted a nine-day rally after a court ruling threatened to delay a resolution to efforts to impeach President Dilma Rousseff, clouding the outlook for the government. Stocks and the currency also joined a rout in emerging markets as a plunge in China’s imports underscored the headwinds to global growth.

“Things look awful from each and every possible angle,” Paulo Henrique Amantea, an analyst at brokerage H.H. Picchioni said from Belo Horizonte, Brazil. “We had bad news from China, and the lack of political definition in Brazil is killing the market.”

The real slumped 3.3 percent to 3.8934 per dollar, leaving it down 32 percent this year, the most in the world. The Ibovespa lost 4 percent to 47,362.64, its biggest drop since December 2014, led by lender Itau Unibanco Holding SA and miner Vale SA. Still, the gauge traded at 11.1 times estimated earnings, 5.6 percent above the average of the past 10 years.

Brazil’s lower house chief suspended a decision on whether to start impeachment proceedings as the Supreme Court questioned his guidelines for ousting a president, saying lawmaker Eduardo Cunha couldn’t singlehandedly establish procedures for an impeachment. Before the injunction, Cunha was expected to decide as early as Tuesday whether to accept an impeachment request.

The political standoff is worsening the outlook for an economy already forecast to post the longest recession since the 1930s. Rousseff reshuffled her Cabinet on Oct. 2 in a bid to gain Congress support for measures to rebuild the nation’s finances. Standard & Poor’s lowered the country’s credit rating to junk last month as the government struggles to shore up the budget.

All 10 groups in the MSCI Brazil index retreated, led by energy shares. Measures of financial and raw-material shares sank at least 6.2 percent. Exporters Fibria Celulose SA and Suzano Papel e Celulose SA rallied as the real weakened.

Brazil analysts surveyed by the central bank for a report published Tuesday forecast that policy makers will have less room for cutting interest rates next year, as inflation expectations for 2016 rose for the 10th straight week. The economists cut their growth forecasts to declines of 2.97 percent this year and 1.2 percent next year.

Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, rose 0.24 percentage point to 15.80 percent.

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