Brazil Real, Stocks Rise on Budget Vote Optimism, Materials Gain

  • Legislation to limit spending is first measure of reforms
  • Petrobras follows crude’s rally on output agreement bets

The Slow Unraveling of Brazil, Explained in Two Minutes

The Ibovespa rose to a two-year high and the real gained as commodities advanced and as expectations mounted that lawmakers will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild confidence in Brazil.

The benchmark equity index rose 0.9 percent and the currency climbed 0.5 percent Monday in Sao Paulo. The Bloomberg Commodity Index rose to the highest level since July 14, while crude gained more than 2.7 percent in New York after Saudi Arabia expressed optimism that OPEC will work out a deal with other producers and Russia said it would back an accord.

Brazilian stocks have gained 75 percent in dollar terms this year and the real has strengthened 24 percent, the best performances in the world, on bets that a new government would be able to pull the country out of its worst recession in a century. Temer, who formally replaced impeached former President Dilma Rousseff in August, said the administration should have enough votes to drive through a budget bill Monday that’s seen as a vital first step toward his economic reforms. The proposal to amend the Constitution to set limits on government spending for as long as 20 years must be approved by at least three-fifths of both chambers of Congress.

"The market is very optimistic over this legislation," said Paulo Figueiredo, an economist at FN Capital in Petropolis, Brazil. "New bets on local assets depend a lot on the signals that will come from this vote."

State-controlled oil producer Petroleo Brasileiro SA contributed most to the Ibovespa’s gains Monday. Lender Itau Unibanco Holding SA climbed to a record high after it agreed to acquire Citigroup Inc.’s retail business in Brazil. The two MSCI indexes of local materials producers were the best performers among 11 industry groups. Miner Vale SA, which accounts for 5.8 percent of the gauge’s weighting, rose the most on the index.

Companies that depend on local demand from for-profit college manager Kroton Educacional SA to supermarket chain Cia. Brasileira de Distribuicao, known as Pao de Acucar, advanced as Brazil economists sharply cut their forecasts for this year’s inflation after the benchmark IPCA consumer price index came in below expectations last week.

Phone carrier Telefonica Brasil SA slumped the most in five years after announcing Chief Executive Officer Amos Genish stepped down.

The real traded at 3.2108 per dollar, the strongest in one month. Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.04 percentage point to 12 percent.

— With assistance by Aline Oyamada

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