LOS ANGELES (MarketWatch) — Brazilian stocks fell Thursday, with an interest-rate cut by the central bank to a new historic low underscoring concerns about the pace of slowing in Latin America’s largest economy.
The Ibovespa (BR:BVSP) equity index fell 0.2% to 53,420.87, though it had been down by as much as 2%. Housing, steel, and communication stocks lost ground, with home builder Rossi Residencial (BR:RSID3) down 7%, but gains among utilities retailers helped curb the overall decline.
A turnaround in shares of oil producer Petrobras (US:PBR) also helped limit the index’s loss as they finished up 0.2%. Iron ore miner Vale’s shares (US:VALE) also closed off session lows, ending down 0.4%.
The Ibovespa may notch its fifth straight loss on Friday if data from China come in weaker than anticipated.
Brazil is sensitive to Chinese economic figures as China is Brazil’s biggest trading partner.
“I do not expect to see data that are lukewarm positive or a surprise positive. I expect to see data that are disappointing,” said Enrique Alvarez, head of Latin American research at IDEAglobal.
“I think it’s just a function of where the different metrics have been reported across the second quarter.“
Brazil’s currency (US:USDBRL) slipped, with the U.S. dollar buying 2.037 reals compared with 2.035 reals late Wednesday.
Monetary policy makers on Wednesday evening unanimously decided to cut the benchmark interest rate, known as the Selic, to 8%.
The half-percentage point cut was in line with expectations. Policy makers began slashing the rate in August from 12.5%.
The rate committee, led by central bank Governor Alexandre Tombini, said in a statement that risks for inflation remain limited.
Also, “up to now, given the fragility of the global economy, the contribution of the external sector has been disinflationary,” therefore leading to the decision to cut the rate to 8%, without bias.
Brazil has “been in the digestive process,” of lackluster economic figures, including Wednesday’s report of an unexpected decline in the volume of retail sales in May, said Alvarez.
Although the figures were from May, the level of activity slowed “even though [the government] enacted all these different tax stimulus to prop up consumption.
So it’s still a question mark if this has been working effectively,” he said. The market is concerned that there’s “already an industrial side that has slowed nearly to a crawl, and, potentially, now you’re seeing the consumption side become a little less fluid.”
Analysts and economists have been cutting their 2012 Brazilian growth projections. In the most recent weekly survey conducted by the central bank, the average growth projection stood at 2.01%, down from 2.05% in the previous week.
Beyond the rate cut, Alvarez said the market continues to be concerned about “very strong recessionary effects in Europe,” with Spain’s new 65 billion-euro austerity package, and the “runaway gallop of grain prices which is injecting a different front of risk not only to Europe, but also to Latin America.”
In other stock markets in Latin America, Mexico’s IPC (MX:IPC) turned higher, by 0.1% at 40,268.41.
Chile’s IPSA (CL:IPSA) fell 0.2% to 4,355.89 and Argentina’s Merval (AR:MERV) fell 0.5% to 2,350.96. On Wall Street, the Dow Jones Industrial Average (US:DJIA) finished 31 points lower at 12,573.27 and the S&P 500 Index (US:SPX) fell 0.5% to 1,334.76.
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The Ibovespa (BR:BVSP) equity index fell 0.2% to 53,420.87, though it had been down by as much as 2%. Housing, steel, and communication stocks lost ground, with home builder Rossi Residencial (BR:RSID3) down 7%, but gains among utilities retailers helped curb the overall decline.
A turnaround in shares of oil producer Petrobras (US:PBR) also helped limit the index’s loss as they finished up 0.2%. Iron ore miner Vale’s shares (US:VALE) also closed off session lows, ending down 0.4%.
The Ibovespa may notch its fifth straight loss on Friday if data from China come in weaker than anticipated.
Brazil is sensitive to Chinese economic figures as China is Brazil’s biggest trading partner.
“I do not expect to see data that are lukewarm positive or a surprise positive. I expect to see data that are disappointing,” said Enrique Alvarez, head of Latin American research at IDEAglobal.
“I think it’s just a function of where the different metrics have been reported across the second quarter.“
Brazil’s currency (US:USDBRL) slipped, with the U.S. dollar buying 2.037 reals compared with 2.035 reals late Wednesday.
Monetary policy makers on Wednesday evening unanimously decided to cut the benchmark interest rate, known as the Selic, to 8%.
The half-percentage point cut was in line with expectations. Policy makers began slashing the rate in August from 12.5%.
The rate committee, led by central bank Governor Alexandre Tombini, said in a statement that risks for inflation remain limited.
Also, “up to now, given the fragility of the global economy, the contribution of the external sector has been disinflationary,” therefore leading to the decision to cut the rate to 8%, without bias.
Brazil has “been in the digestive process,” of lackluster economic figures, including Wednesday’s report of an unexpected decline in the volume of retail sales in May, said Alvarez.
Although the figures were from May, the level of activity slowed “even though [the government] enacted all these different tax stimulus to prop up consumption.
So it’s still a question mark if this has been working effectively,” he said. The market is concerned that there’s “already an industrial side that has slowed nearly to a crawl, and, potentially, now you’re seeing the consumption side become a little less fluid.”
Analysts and economists have been cutting their 2012 Brazilian growth projections. In the most recent weekly survey conducted by the central bank, the average growth projection stood at 2.01%, down from 2.05% in the previous week.
Beyond the rate cut, Alvarez said the market continues to be concerned about “very strong recessionary effects in Europe,” with Spain’s new 65 billion-euro austerity package, and the “runaway gallop of grain prices which is injecting a different front of risk not only to Europe, but also to Latin America.”
In other stock markets in Latin America, Mexico’s IPC (MX:IPC) turned higher, by 0.1% at 40,268.41.
Chile’s IPSA (CL:IPSA) fell 0.2% to 4,355.89 and Argentina’s Merval (AR:MERV) fell 0.5% to 2,350.96. On Wall Street, the Dow Jones Industrial Average (US:DJIA) finished 31 points lower at 12,573.27 and the S&P 500 Index (US:SPX) fell 0.5% to 1,334.76.
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