Brazil Stocks Rise With Real Amid Corruption Probe Speculation

  • O Globo reports a Rousseff ally agreed to a plea bargain
  • Stocks, currency fell earlier on Brazil fiscal concerns

Brazilian stocks and the currency advanced on renewed speculation that President Dilma Rousseff could be ousted from power, clearing the way for new government that would focus on restoring growth and showing up the budget.

The Ibovespa and the real reversed losses after a report that a prominent member of Rousseff’s PT political party agreed to a plea deal related to the country’s biggest ever corruption investigation. Newspaper O Globo said the person had given prosecutors details of a kickback scheme involving some of Brazil’s biggest companies.

“If he decides to talk, that could be bad for PT and for the government,” said Luis Gustavo Pereira, an analyst at Guide Investimentos Corretora. “People see as a positive anything that increases odds that PT will be ousted, or, at least, won’t win the election in 2018.”

Lawmakers began impeachment proceedings late last year against Rousseff for allegedly mishandling the accounting of government finances. Brazil’s benchmark stock gauge is the world’s fourth-worst performer in dollar terms over the past year, with only markets in Greece, Namibia and Zambia faring worse, as forecasts for the country’s worst recession in a century and falling prices for commodity exports saps the outlook for corporate profits.

The Ibovespa climbed 0.2 percent to 41,543.41 in Sao Paulo after jumping as much as 0.8 percent following Globo’s report, extending its advance this week to 4.4 percent. The real gained 0.2 percent to 4.022 per U.S. dollar, leaving it down 0.5 percent for the week. State-run oil producer Petroleo Brasileiro SA, which is in the midst of the corruption probe, fell 2.8 percent, extending this year’s rout to 33 percent, as crude declined.

BM&FBovespa SA dropped as much as 2.2 percent before paring losses to 0.1 percent at the close of trading. The exchange operator posted fourth-quarter earnings that trailed analysts’ forecasts and also said Thursday it booked a 1.66 billion-real impairment at the end of 2015. Mining company Vale SA and Bradespar SA, Vale’s parent, jumped the most on the Ibovespa as iron ore capped its best week in 10 months.

Brazilian stocks and currency fell earlier in the day amid concern that the country is losing its fight to shore up the federal budget. The federal government is freezing 23.4 billion reais ($5.8 billion) in spending in 2016, Budget Minister Valdir Simao said Friday. While that’s in line with estimates that have circulated in recent weeks, it’s less than half of what policy makers had previously considered.

“The market is tired of hearing different numbers from the government,” said Paulo Nepomuceno, a fixed-income strategist at Coinvalores CCVM in Sao Paulo. “It’s hard to trust they will be able to achieve anything they say.”

Meanwhile, traders pared their bets for interest rates. Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, declined 0.085 percentage point to 14.235 percent.

The recession will help shave about 2 percentage points off annual inflation in the first half of 2016, central bank President Alexandre Tombini said Thursday in a televised interview with O Globo. Annual inflation accelerated to 10.71 percent in January, more than double the official target of 4.5 percent.

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