Petrobras May Help Push Brazil Stock Market Down 35 Percent

February 19, 2015

Jay Forte – The Rio Times, 2/19/2015

A new report by market research company Capital Economics has tried to calculate the cost of the Petrobras scandal in Brazil, which has caused political and financial ripples across the country. Brazil’s stock market has fallen by 35 percent in terms of U.S. dollars since the start of September, just under half of that has been caused by a drop in the value of Petrobras shares.

However even without the fall in Petrobras shares, Capital Economics estimates that Brazil’s stock market would still have dropped by about twenty percent over the same period. This is in part due to a swing of currency exchange, slowing of demand for exports and the drop in oil prices globally.

Still, the stock market fall is the largest drop of any major market with the exception of Greece and a few oil producers (for example Nigeria and Colombia). Despite recent steep falls in its share price, Petrobras still accounts for almost ten percent of the total market capitalization of the Bovespa equity index.

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Look for Income Where Yields Are High

February 19, 2015

Martin Hutchinson – Wall Street Daily, 2/19/2015

Income investing has become more and more difficult as the world’s central banks have continued pursuing zero-interest rate policies.

When short-term money pays nothing and bond yields trend steadily downward, the prices of income stocks rise until only dangerous rubbish offers a decent yield.

However, there’s one country where shares with decent yields are easy to find, and there’s no force driving stock prices to unsustainable levels. Better yet, this country has been so unpopular among investors recently that the local market can now be rated a “Buy” – with a decent yield, to boot.

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Brazil’s Levy tells investors fiscal adjustment to correct ‘slippage’

February 19, 2015

Herbert Lash – Reuters, 2/18/2015

Brazil is removing the last vestiges of tax cuts and government spending aimed at bolstering the economy as officials work to correct the fiscal slippage of the last few years, Finance Minister Joaquim Levy told investors on Wednesday.

Levy said that the government of President Dilma Rousseff will work to meet its primary budget surplus goal of 1.2 percent of gross domestic product in 2015.

“We are just taking these anti-cyclical measures away, and this will put us on better footing,” Levy said in his first public address to investors in the United States.

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Rousseff’s austerity plan for Brazil runs into trouble with allies

February 13, 2015

Anthony Boadle and Alonso Soto – Reuters, 2/13/2015

President Dilma Rousseff’s austerity push has run into stiff opposition from her own allies in Congress that could derail her efforts to restore Brazil’s fiscal credibility and avoid a damaging credit rating downgrade.

The leftist leader’s allies, including members of her own Workers’ Party, are seeking to water down a first batch of unpopular bills that trim unemployment and pension benefits and save some 18 billion reais ($6.32 billion).

The bills are part of an austerity drive led by Finance Minister Joaquim Levy, a fiscal conservative picked by Rousseff to plug a growing public-sector deficit with spending cuts and tax hikes aimed at saving the once booming economy’s coveted investment grade.

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Whose oil in Brazil?

February 13, 2015

The Economist (print edition), 2/14/2015

THE slogan under which Petrobras, Brazil’s national oil company, was founded in 1953 was o petróleo é nosso (“the oil is ours”). Ours, not the foreigners’, was the implication. That, too, is the sentiment behind the oil policy of the Workers’ Party (PT) governments that have ruled Brazil since 2003. But as Brazilians contemplate the huge corruption scandal now engulfing Petrobras, they might ask themselves just who “ours” refers to.

The PT disliked a successful reform of Petrobras in the 1990s, which stripped it of its monopoly of production and distribution while subjecting it to market discipline and arm’s-length corporate governance. When the company and its new foreign partners made huge deep-sea oil strikes in 2007 Luiz Inácio Lula da Silva, Brazil’s president, saw a chance partially to restore Petrobras’s monopoly. New oil laws drawn up by Dilma Rousseff, his chief of staff and successor, gave the company sole operating rights and a minimum 30% stake in the new fields.

Lula and Ms Rousseff saw oil as the spearhead of an industrial policy that involved fostering favoured sectors and presumed national champions. Lula ordered Petrobras to build four new refineries, three in the poor north-east. A new rule required up to 85% of equipment and supplies for the oil industry to be nationally produced. A dozen new shipyards studded the Brazilian coast, fed on cheap government loans. They provided 74,000 new jobs, boasted Ms Rousseff during her campaign last year for a second term. “We created an immense industry.”

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Exclusive: Brazil seeks to block return to free trade in autos with Mexico – sources

February 13, 2015

Ana Isabel Martinez and Alonso Soto – Reuters, 2/12/2015

Grappling with tumbling auto sales and weak economic growth, Brazil wants to derail a pact that would allow unlimited imports of cars from Mexico, sources familiar with the situation say, in a move that could stoke trade tensions between Latin America’s largest economies.

A treaty between the two nations and auto manufacturers, which sets quotas on how many light vehicles Mexico and Brazil can sell each other, expires in March. Auto trade between the two was then supposed to be fully liberalized.

Brazil this week invited a Mexican government delegation to a meeting in Brasilia between Feb. 20 and 25 for talks to revamp the treaty.

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Amid Division and Paralysis, an Isolated Rousseff Confronts Scandal and Her Own Troubled Legacy

February 12, 2015

Paulo Sotero – The Huffington Post, 2/12/2015

Millions of Brazilians will sing and dance in the streets in the pre-lent festival of Carnaval starting this weekend. This year, however, there is no way to escape the harsh realities of a government paralyzed by division, scandals, and an economy on the verge of recession. The sharp increase of the inflation rate to 1.24 percent in the month of January, or 7.14 percent in the past 12 months — well above the Central Bank’s target limit of 6.5 percent — did not come as a surprise to Brazilians. According to a new survey, 86 percent of them believe prices will keep rising in 2015 as the government puts in place an austerity strategy described by President Dilma Rousseff in the first cabinet meeting of her recently inaugurated second term as “corrective” and “indispensable” to restore the country’s financial health. The expectation of continued price hikes will complicate the task of the team led by Finance Minister Joaquim Levy to stabilize the economy and restore confidence among Brazilian and foreign investors in the country’s capacity to resume sustainable growth in the years ahead. Some 90 percent of those surveyed said they expect salaries not to keep up with inflation, which implies rising social tension and trouble ahead within the government coalition led by the Workers’ Party (PT).

Brazilians’ overall perception of the economy has turned sharply negative, according to a telephone survey called Radar Ideia Popular conducted by Ideia Inteligência, with a sample of 78,222 people in 259 cities in all regions of the country from January 26 to February 1. Three quarters expect employment levels to worsen during the year in comparison with 2014, when record low unemployment served as a powerful campaign argument by President Rousseff. The negative perception on employment trends is more pronounced in the Southeastern states, Brazil’s economic powerhouse and home to the bulk of political opposition to the president, who won reelection last October by a narrow 3 percent margin: 81 percent expect the situation to get worse and only 15 percent said it will get better. A slightly more optimistic view prevails in the pro-government Northeastern region, where 30 percent see a rosier picture on employment, compared to 68 percent who are pessimistic. Nationally, there is strong pessimism on employment among the young, with two thirds of them expecting the job situation to deteriorate.

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