Brazil Real Weakens To 1.6000/Dollar, Stocks Plunge
SAO PAULO (Dow Jones)--The Brazilian real weakened to the lowest level against the dollar in two months and stocks plunged 5.5% on Monday after the U.S. had its credit rating cut and on lingering concerns about the debt crisis in Europe.
The real traded at BRL1.6047 to the dollar, weaker than its previous close at BRL1.5845, according to Tullet Prebon via Factset. The last time the currency closed weaker than 1.6 per dollar was June 16.
The benchmark Ibovespa stocks index, meanwhile, slumped 5.5% to 49,974, the weakest in more than two years.
"The market's scared," said Reginaldo Siaca, head of currency trading at Advanced Corretora in Sao Paulo. "This is a delicate moment because, except for in China and some emerging markets, the economy is stalled. According to our government we're prepared for this situation, but nobody knows the breadth of the situation."
After markets closed on Friday, the Standard & Poor's credit rating company removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal recently brokered in Washington didn't do enough to address the gloomy outlook for America's finances. S&P also put the new grade on "negative outlook," meaning the U.S. has little chance of regaining the top rating in the near term.
In Europe, meanwhile, the European Central Bank signaled it would purchase government bonds of Italy and Spain on a large scale as the euro-zone countries face debt difficulties of their own. Though the ECB statement released late Sunday didn't specifically mention Spanish and Italian bonds, those two countries have seen borrowing costs surge in recent weeks, reaching levels many see as unsustainable.
The rating cut spooked investors, who fled riskier assets in emerging markets on concern the recovery in the global economy will take much longer than previously estimated, depressing global commodity prices for some time to come. Brazil is a major raw material exporter, relying on shipments of mineral and agricultural commodities for a large part of its foreign income.
"Despite the U.S. downgrade, the dollar gains," said Brazilian brokerage Lerosa Investimentos. "The markets still sees the U.S. economy as the only reliable refuge, not paying attention to the mark that risk agencies place on the economy."
According to Deutsche Bank, the stumbling global economy may give room for policy makers to cut interest rates in Brazil.
"Brazil has substantial room to cut rates if the global situation worsens considerably," Deutsche Bank strategists Frederick Searby and Francisco Schumacher wrote. "Indeed, the Central Bank President has expressed comfort with second half inflation, as the lagged impact of the 1H11 tightening kicks in."
The outlook for a prolonged global crisis sent commodity prices plunging, with crude oil for September delivery dropping 3.6% to $83.80 a barrel in electronic trading on Globex.
State-controlled oil company Petroleo Brasileiro SA (PBR, PETR4.BR) dropped 5.5% to RL19.07, while OGX Petroleo & Gas Participacoes SA (OGXP3.BR), the oil producer controlled by Brazilian billionaire Eike Batista, slumped 9.4% to BRL9.98.
Vale SA (VALE, VALE5.BR), the world's biggest iron-ore producer, also declined, falling 5.5% to BRL38. MMX Mineracao & Metalicos (MMXM3.BR), the mining company also owned by Batista, dropped 7.7% to BRL6.09.
All 70 stocks on the index fell.
Among the biggest losers were beef producer Marfrig SA (MRFG3.BR), which declined 17% to BRL9.96. Brasil Ecodiesel (ECOD3.BR), a biofuel producer, dropped 10% to BRL0.54. Another Batista company, LLX Logistica (LLXL3.BR), which provides transportation services, dropped 7.4% to BRL3.36.
Among the country's other blue-chip stocks, telephone giant Tele Norte Leste SA (TNE, TNLP4.BR), or Oi, lost 4.9% to BRL19.75.
Minas Gerais utility Cemig (CIG, CMIG4.BR) fell 2.8% to BRL27.80.
Aircraft manufacturer Empresa Brasileira de Aeronautica (ERJ, EMBR3.BR), or Embraer, dropped 7.2% to BRL9.05.
-By Paulo Winterstein, Dow Jones Newswires; 55-11-3544-7073; paulo.winterstein@dowjones.com |
