Brazil’s Stocks, Real Fall on Recovery Concern After Output Data

Updated on
  • Poll showing President Temer lacks popularity adds to bad mood
  • Itausa slumps as it’s said to plan bid for fuel distributor

Brazilian stocks and its currency dropped as weak manufacturing data and an opinion poll showing most Brazilians don’t trust President Michel Temer raised concern that the country will struggle to recover from its worst recession in a century.

The benchmark Ibovespa stock index fell 0.2 percent to 59,339.23 Tuesday in Sao Paulo with 38 of its 58 stocks down. The real lost 1.5 percent to 3.2580 per dollar. Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.08 percentage point to 12.17 percent after central bank head, Ilan Goldfajn, said there is no timeline for easing monetary policy.

Brazilian stocks have gained 67 percent this year in dollar terms and the real has appreciated 22 percent, the best performances in the world, on bets that a new government would be able to restore growth. The bigger-than-forecast drop in industrial production and the lack of support for Temer, who has vowed to push for potentially unpopular fiscal reforms that include pension cuts, are making investors more cautious regarding the outlook for the economy.

"It seems it will take longer that everybody anticipated," Vitor Suzaki, an analyst at brokerage Lerosa Investimentos, said from Sao Paulo. "The market should remain volatile while investors await more signals on the pace of the rebound."

Companies that depend on domestic demand were among the worst performers on the benchmark equity index, including clothing retailer Lojas Renner SA and education group Estacio Participacoes SA. Itausa - Investimentos Itau SA fell after people familiar with the matter said the company plans to join Cambuhy Investimentos Ltda. in a bid for a controlling stake in Petroleo Brasileiro SA’s fuel distribution business.

Brazilian assets also declined Tuesday after comments from Federal Reserve officials that fueled speculation interest rates in the U.S. may be increased faster than previously expected. In a speech on Tuesday, Fed Bank of Richmond President Jeffrey Lacker -- who doesn’t vote on monetary policy this year -- urged the central bank to raise rates to head off a likely pickup in inflation that would force bigger increases later.

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