Brazil’s Stocks Drop as U.S. Rate Concern Adds to Corporate Woes

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  • Most Brazilian companies missed estimates in second quarter
  • New York Fed chief says getting closer to time for tightening

The Ibovespa fell from its highest level since 2014 as concern that the Federal Reserve may increase U.S. interest rates sooner than previously expected added to pessimism over corporate profit while Brazil struggles to recover from recession.

Steelmaker Cia. Siderurgica Nacional SA, the best performing stock in the Brazilian market this year, dropped the most among the gauge after second-quarter earnings trailed analysts’ estimates. Among the 56 companies that have already reported results, the earnings of 34 disappointed, fueling speculation that companies are still feeling the full weight of the worst contraction in a century even as confidence in Acting President Michel Temer remains high.

Brazilian stocks joined a global rout Tuesday as New York Fed President William Dudley said the central bank could potentially raise interest rates as soon as next month. The weak gains of Brazil’s companies wouldn’t be enough to convince investors to leave their money in the country if borrowing costs in the world’s biggest economy increase.

"The market had assumed that rates in the U.S. would stay low for a longer time, and a potential raise is a risk for Brazilian assets," Luis Gustavo Pereira, an analyst at the brokerage Guide Investimentos, said from Sao Paulo.

The Ibovespa fell 0.5 percent to 58,855.43 on Tuesday in Sao Paulo. CSN, as Cia. Siderurgica is known, dropped 5.6 percent. Miner Vale SA and state-controlled oil producer Petroleo Brasileiro SA followed commodities higher.

Brazil’s benchmark equity gauge has advanced 36 percent this year on bets that Temer would be able to get support to measures aimed at shoring up the country’s finances and restoring growth. The room for additional advance of the index is deemed limited, though, as the trial on President Dilma Rousseff’s impeachment for allegedly breaking budget laws gets closer, increasing political uncertainties.

Rousseff pledged to hold a plebiscite on new elections if she survives in office in a speech this Tuesday. The Senate President, Renan Calheiros, and Supreme Court head Ricardo Lewandowski will meet political party leaders on Wednesday to define the procedures on the trial, expected to begin next week, according to Agencia Senado.