Ibovespa Declines Most in Two Months on Outlook for U.S. Rates

  • Itau, Bradesco contribute the most to the Ibovespa’s drop
  • State-owned oil producer Petrobras follows crude prices lower

The Ibovespa fell the most in two months as a heightened probability of a U.S. interest-rate increase this year undermines prospects for riskier Brazilian assets.

Lenders Itau Unibanco Holding SA and Banco Bradesco SA contributed the most to the benchmark equity index’s decline. State-controlled oil producer Petroleo Brasileiro SA, known as Petrobras, and miner Vale SA followed commodities prices lower. Steelmaker Cia. Siderurgica Nacional SA was the worst performer on the gauge after a columnist at newspaper O Globo reported that the company warned suppliers they’ll have to wait 120 days for payments, up from 30 days previously.

Brazilian stocks joined a rout in emerging markets Monday after Federal Reserve Vice Chairman Stanley Fischer indicated that a 2016 rate hike is still under consideration. Because higher rates in the world’s largest economy may reduce the attractiveness of local assets, investors are hitting the brakes on a rally that fueled gains of 33 percent for the Ibovespa this year amid optimism that the country is poised to recover from a recession.

"A very positive scenario for Brazil has turned to just positive," Rogerio Storelli, a portfolio manager at GGR Investimentos, said from Sao Paulo. "The enthusiasm has diminished a little as the outlook for rates in the U.S. changed."

The Ibovespa declined 2.2 percent to 57,781.24 at the close of trading in Sao Paulo, the steepest drop since June 24. All but three of its 59 stocks fell. Itau and Bradesco lost at least 1.9 percent. Petrobras retreated 3.4 percent, while Vale fell 3.7 percent.

CSN slumped 8.3 percent after the report on payments to its suppliers. CSN has significant cash flow and is moving to pay suppliers on 120-day term as part of new accounting strategy, Fabio Spina, a company spokesman, said in phone interview.

Trading volume of Ibovespa stocks was 15 percent below the 30-day average as traders adopted a more cautious strategy ahead of a speech in the end of the week by Fed Chair Janet Yellen, who is expected to provide additional signals on the next steps for monetary policy, and of the impeachment trial of Brazil’s President Dilma Rousseff, scheduled to begin Aug. 25.

The Ibovespa is the best-performing major equity benchmark this year in dollar terms on bets that the new government, led by Vice President Michel Temer, will be able to win back investors’ confidence.

"Despite today’s drop, the up trend should continue, so I think every decline opens room to more stocks acquisitions," Raphael Figueredo, an analyst at the brokerage Clear Corretora, said from Sao Paulo.

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