The Market Votes on Brazil

October 28, 2014

The Wall Street Journal, 10/27/2014

Brazilians had their democratic say on Sunday, voting narrowly to re-elect President Dilma Rousseff of the left-leaning Workers’ Party to another four-year term. On Monday the world voted on Brazil’s choice, and this time the result was a resounding no confidence.

Brazil’s currency, the real, fell almost 2% and was trading at about 2.52 against the dollar at the end of Monday, close to its lowest point in a decade. Brazil’s main stock market index was down 2.8% to its lowest close in six months. Those markets had rallied some in the last few weeks as challenger Aécio Neves had come close to Ms. Rousseff in the polls. So the Monday selloff was a case of investors pricing in the discount of continuing bad economic policy. A Brazil credit downgrade to “junk” status is likely on present trend.

Brazil is proof that democracy is no guarantee of prosperity. A country rich in resources and people has managed to squander both with an overweening state that buys votes via income redistribution and price controls on gasoline that force losses on producers. Those are Third World policy blunders in a country that fancies itself a First World aspirant. This explains Brazil’s consistent economic underperformance (0.5% growth this year, following 2.5% in 2013) and 6.75% inflation rate.

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Real Drops to Lowest Since 2008 as Rousseff Leads in Voter Polls

October 24, 2014

Paula Sambo and Filipe Pacheco – Bloomberg, 10/23/2014

Brazil’s real fell to the lowest since December 2008 after polls showed President Dilma Rousseff led candidate Aecio Neves three days before the election runoff.

The real declined 0.5 percent to 2.50 per dollar at the close of trade in Sao Paulo after earlier today falling 1.2 percent. The Ibovespa tumbled 3.2 percent, leading losses among major stock benchmarks and erasing this year’s gain.

“Investors are more and more pricing in a victory for Rousseff,” Andre Perfeito, the chief economist at Gradual Investimentos in Sao Paulo, said by telephone. “Many traders are still cautious, but these polls show she is ahead, and people are considering that in trading the currency.”

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Brazil Shares Jump, Real Surges Against Dollar After 1st Round of Presidential Vote

October 6, 2014

Jeffrey T. Lewis, Rogerio Jelmayer, and Luciana Magalhaes – The Wall Street Journal, 10/6/2014

Brazilian shares jumped and the real surged against the dollar after pro-business candidate Aécio Neves performed better than expected and placed second in Sunday’s presidential election.

Mr. Neves will face President Dilma Rousseff, who finished with the most votes, in a runoff on Oct. 26.

Investors have complained about Ms. Rousseff’s economic policies, which they say have hurt growth. For weeks Brazilian shares have risen and the real strengthened on any bad news for the president, and vice versa.

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Brazil’s Real Drop to Five-Year Low as Rousseff Support Climbs

October 1, 2014

Filipe Pacheco – Bloomberg, 10/1/2014

Brazil’s real fell to a five-year low on concern Latin America’s largest economy will struggle to recover as a voter poll showed President Dilma Rousseff winning her re-election bid.

The real declined 0.3 percent to 2.4549 per U.S. dollar at 10:03 a.m. in Sao Paulo, the lowest level on a closing basis since December 2008. The currency declined 9.5 percent in the third quarter, the worst performance among 24 emerging-market currencies after Russia’s ruble.

Rousseff has taken the lead and would win a second term in Brazil’s election this month against former Environment Minister Marina Silva, according to a Datafolha poll released yesterday after markets were closed. Speculation that a new government would revive economic growth and curb inflation helped push the real to a one-month high on Aug. 29.

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Brazil’s Rousseff extends lead over Silva in election poll

September 30, 2014

Anthony Boadle – Reuters, 09/29/2014

President Dilma Rousseff’s expected victory margin over closest rival Marina Silva has surged to 9 percentage points in a second-round runoff in Brazil’s presidential election, an opinion poll showed on Monday, causing stocks and the real currency to tumble.

Rousseff would win the runoff with 47.7 percent of the votes against 38.7 percent for Silva, polling firm MDA said, widening her lead from the one-point advantage she had in the previous survey by the firm last week.

Another survey released later on Monday by the Vox Populi polling firm showed Rousseff with a seven-point lead over Silva in a runoff, unchanged from a week earlier.

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Brazilian Stocks, Currency Plummet as Presidential Election Looms

September 30, 2014

Jeffrey T. Lewis and James Ramage – The Wall Street Journal, 09/29/2014

Brazil’s stock market and currency were sent reeling Monday by signs President Dilma Rousseff is pulling ahead of her main challenger in the country’s presidential election next month.

The Brazilian real weakened to its lowest level against the dollar in nearly six years Monday, declining 2.4% to 2.4777 reais, before paring losses to 2.4543 reais later in the day. The country’s benchmark Ibovespa stock index fell as much as 5% in early trading and was down 2.2% early in the afternoon.

Brazil’s losses were among the worst in a broad selloff that hit financial markets across the developing world. Developing economies have been caught up in fears the Federal Reserve is moving closer to raising interest rates, a move that would make higher-yielding currencies, such as those in emerging markets, less attractive to investors. Concerns about protests in Hong Kong have also sent investors into less-risky assets.

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Brazil’s Real Drops to Seven-Month Low as Silva’s Support Falls

September 19, 2014

Paula Sambo – Bloomberg, 9/19/2014

Brazil’s real fell to a seven-month low as a voter poll showed a drop in voter support for Marina Silva as President Dilma Rousseff defended her economic and fiscal policies before the October election.

The real dropped 0.4 percent to 2.3732 per U.S. dollar at 2:36 p.m. in Sao Paulo, extending this week’s decline to 1.5 percent, the biggest among 16 major currencies tracked by Bloomberg. Swap rates, a gauge of expectations for changes in borrowing costs, increased seven basis points, or 0.07 percentage point, to 11.70 percent on the contract due in January 2016 as a report showed inflation accelerated. They were up nine basis points since Sept. 12.

“Markets are not pleased with Rousseff gaining support,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.

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