Brazil Real, Stocks Rise as Political Concern Eases After Voteby and
Currency gains fourth day as Ibovespa rallies to 6-week high
Fed comments boost demand for emerging-market currencies
Brazil’s real posted its longest rally in six months and the Ibovespa joined global gains as concern over political instability eased and the U.S. Federal Reserve boosted demand for emerging-market assets by signaling interest-rate increases will be gradual.
The real rose for a fourth straight day while the country’s benchmark equity index jumped to a six-week high after a Congressional vote backing President Dilma Rousseff’s spending restrictions fueled optimism the government will be able to trim Brazil’s budget deficit.
The defused political scenario comes as investors are already feeling more bullish on riskier assets after the Fed signaled in policy meeting minutes released Wednesday that interest rates will rise slowly. While Fed officials concluded “it may well become appropriate” to raise rates in December, they largely agreed the process will be gradual. Brazilian assets, which lure investors with higher interest rates than are available in the developed world, may become less attractive as the U.S. tightens its monetary policy.
“There’s some relief after so much anxiety,” Joao Paulo de Gracia Correa, a foreign-exchange manager at SLW Corretora de Valores, said from Curitiba, Brazil. “The political pressure has eased substantially this week. Impeachment is looking further and further away, and the Fed speculation is helping the general mood.”
The real rose 1.3 percent to 3.7179 per dollar Thursday, bringing this week’s gain to 3.5 percent. A gauge of emerging-market currencies rose 0.7 percent. The Ibovespa added 1.5 percent to 48,138.89, posting its longest winning streak since Oct. 9. Steelmaker Cia. Siderurgica Nacional SA rallied for a second day after Finance Minister Joaquim Levy confirmed that the government is studying increasing taxes on imports of the metal. Brazilian markets will be closed Friday for a holiday.
"The market is looking for better opportunities in this scenario," Pedro Paulo Silveira, chief economist at brokerage TOV Corretora, said from Sao Paulo. "The signals from the Fed are a relief and the impeachment talks in Brazil softened. But we should be cautious, none of this is a sure thing."
Brazil’s annual inflation exceeded 10 percent for the first time in 12 years, highlighting the impact that the government’s widening budget gap is having on consumer prices even as the economy heads toward a recession. Consumer prices rose 0.85 percent from Oct. 15 to Nov. 12, pushing the 12-month inflation rate to 10.28 percent, the national statistics agency said Thursday.
As inflation continues to accelerate, Brazil’s central bank has acknowledged it won’t meet its goal of slowing consumer price growth to its 4.5 percent target until 2017. The bank has signaled it will keep interest rates on hold for a third consecutive meeting next week as it is seeks to avoid further slowing in the economy. Unemployment in October rose to 7.9 percent, exceeding the 7.6 percent median estimate of economists.
Swap rates on the contract maturing in January 2017, a measure of expectations for interest-rate moves, dropped 0.24 percentage point to 15.21 percent.