Ibovespa Surges With Oil as Budget Deal Adds to Fiscal Optimism

  • Currency fluctuates on last trading day of the month
  • Senators approve base text of plan to freeze public spending

The Ibovespa was at the mercy of oil for a second day.

Brazil’s benchmark stock index rose as a surge in crude prices spurred gains in Petroleo Brasileiro SA. Health care companies and consumer stocks also gained on speculation the government will be able to restore investor confidence after scoring an important budget victory in Congress. The real, which fluctuated between gains and losses throughout the day, ended 0.2 percent stronger.

It was a reversal for the Ibovespa, the world’s worst performing stock gauge Tuesday amid a plunge in commodities, which account for more than half the country’s exports. Brazil’s stocks and currency are the world’s best performers this year on speculation President Michel Temer will win approval for measures to trim a budget deficit and restore growth after Latin America’s biggest economy had its credit rating cut to junk. The government’s plan to freeze public spending in real terms for up to 20 years is on the verge of becoming law after senators approved the constitutional amendment late Tuesday in a landslide.

"This approval was a very good sign," said Daniel Weeks, an economist at Garde Investimentos. "Amid the political noise, the government concluded the vote within the deadline and with an ample victory. Despite all the stress, the votes are going really well."

The Ibovespa advanced 1.5 percent to 61,906.36 on Wednesday as 39 of its 58 stocks rose. Petrobras surged 9.1 percent as crude jumped 8.4 percent after OPEC clinched a deal to curtail oil supply. Qualicorp SA, a health insurer, rose 5.5 percent and real-estate developer Multiplan Empreendimentos Imobiliarios SA added 4.2 percent.

Oil and optimism about the fiscal adjustment overshadowed data showing gross domestic product contracted 0.8 percent in the three months ended in September, after a revised 0.4 percent drop in the previous quarter. The figure was slightly better than the median estimate for a 0.9 percent decline from 50 economists surveyed by Bloomberg. From a year earlier, GDP shrank 2.9 percent after a revised 3.6 percent drop in the previous quarter, the national statistics institute said Wednesday.

The currency gained to 3.3858 per dollar amid speculation banks were buying and selling the greenback in an attempt to control the central bank rate used in settling some financial contracts at the end of the month.

Some traders might have bet the real would be at a weaker level this month and were trying to weaken the local currency, according to Jefferson Rugik, a trader at Correparti Corretora de Cambio.

The central bank currency rate, known as Ptax, is calculated every business day based on data collected from banks, but the last day of the month becomes a reference for the settlement of many derivative contracts in the local market.

— With assistance by Anna Edgerton, Samy Adghirni, David Biller, Josue Leonel, and Aline Oyamada

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