Ibovespa Climbs With Real as China's Support Boosts Commodities

  • Steelmakers and miner Vale are among best performers on index
  • Global optimism offsets outlook for worsening crisis at home

The Ibovespa rose for a second day while the real gained for the first time in five sessions as China’s efforts to support its currency spurred a commodities rally and improved the outlook for Brazil’s raw-materials producers.

Half of the 10 best performers on Brazil’s benchmark equity index Monday were linked to commodities. Miner Vale SA’s voting shares rose to a five-week high, while steelmakers Gerdau SA and Usinas Siderurgicas de Minas Gerais SA were among the biggest gainers. Metals advanced as China’s yuan jumped by the most since a dollar peg was scrapped in 2005. Raw-materials producers account for 20 percent of the Ibovespa’s weighting, and China is Brazil’s main trading partner. The real recovered from its worst week in two months.

The global rally helped overshadow growing pessimism surrounding Brazil’s domestic economy amid a colossal corruption scandal and as the government struggles to contain both inflation and a swelling budget deficit. Analysts in a central bank survey published Monday forecast gross domestic product will shrink 3.33 percent this year, a steeper drop-off than the 3.21 percent contraction they predicted a week earlier.

"The local stock market is benefiting from the global positive mood today," Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. "But we expect more volatility, because the scenario for companies that depend on domestic demand is discouraging."

The Ibovespa climbed 0.7 percent to 40,092.98 in Sao Paulo as 46 of its 61 stocks advanced. The Bloomberg Base Metals Three-Month Price Commodity Index added 1.1 percent, and Brent crude rose 1.9 percent. Vale added 2.5 percent, Gerdau advanced 1.1 percent, and Usiminas, as Usinas Siderurgicas is known, climbed 5.9 percent.

The real strengthened 0.1 percent to 3.9979 per dollar, while a gauge of 20 emerging-market currencies gained 0.3 percent. The currency, which dropped 33 percent last year as Brazil had its investment grade cut to junk by Standard & Poor’s and Fitch Ratings, is down 0.8 percent this year.

China strengthened the yuan’s fixing by the most in three months and talked up its currency as markets reopened after the week-long Lunar New Year break. The Asian nation’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, People’s Bank of China Governor Zhou Xiaochuan said in an interview published in Caixin magazine over the weekend.

"Hopes that the PBoC will step up efforts seem to lend support to the real," said Ipek Ozkardeskaya, an analyst at London Capital Group. "Optimism in the market, on these hopes that major central banks will add more stimulus to prevent the world economy from plunging into a deeper melancholy, help to give some color to risky assets such as the real."

The real’s three-month implied volatility, a projection for currency swings, declined 0.3 percentage point to 20 percent, still the highest among 16 major currencies tracked by Bloomberg.

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, declined 0.02 percentage point to 14.4 percent.

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