The Bovespa index posted a weekly decline after lower-than-forecast growth in the U.S. squelched optimism about the economic recovery in Brazil’s second-biggest trading partner.
Cyrela Brazil Realty SA Empreendimentos e Participacoes, the country’s second-biggest real-estate company by revenue, dropped to a three-month low. Retailers Lojas Renner SA and Cia. Hering (HGTX3) advanced after reporting first-quarter results. Unicasa Industria de Moveis SA rallied in its first day of trading after raising as much as 425.6 million reais ($226 million) in an initial public offering April 25.
The Bovespa fell 0.8 percent to 61,691.21 at the close in Sao Paulo, pushing the weekly decline to 1.3 percent. Thirty-six stocks dropped while 31 gained. The real weakened 0.1 percent to 1.8870 per U.S. dollar at 5:26 p.m. local time.
“The U.S. economy expanded less than forecast, and investors were expecting good numbers to support expectations of a recovery,” Gustavo Mendonca, an economist at Oren Investimentos, said by phone from Rio de Janeiro.
Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate in the first quarter after expanding at a 3 percent pace in the final three months of 2011, a government report showed today. The median forecast of economists in a Bloomberg News survey was for 2.5 percent expansion. Household purchases increased 2.9 percent, exceeding the most optimistic projection. Homebuilding grew the fastest in almost two years.
Cyrela dropped 7.8 percent to 15.75 reais, the worst performance on the BM&F Bovespa Real Estate Index (IMOBBV), which slid 1.9 percent. Unicasa gained 9.7 percent to 15.36 reais.
Hering, Brazil’s second-biggest clothing retailer, gained 3 percent to 46.81 reais, the steepest one-day advance in a month. First-quarter profit rose 38 percent to 70.2 million reais, according to a regulatory filing. The result was above the 67.3 million reais average estimate of five analysts surveyed by Bloomberg.
Lojas Renner, the country’s biggest clothing retailer, jumped 3.4 percent to 60.20 reais. The company said in a regulatory filing that profit fell 24.9 percent to 35.7 million reais in the first quarter. The result was below the 39.7 million reais average estimate of eight analysts in a Bloomberg survey.
Renner’s earnings “were affected by operating expenses, especially those related to the opening and reshuffle of stores, which is seen as positive,” Leonardo Zanfelicio, an analyst at Concordia Corretora, said by phone from Sao Paulo. “Investors expect sales at this industry to advance during this year.”
Yields on most Brazilian interest-rate futures contracts dropped as traders bet the country has shifted its focus from controlling inflation to boosting economic growth by lowering borrowing costs. The yield on the contract due in January 2014 declined 10 basis points, or 0.1 percentage point, to a record low 8.71 percent.
The IGP-M index of wholesale, construction and consumer prices rose 0.85 percent in April, the Getulio Vargas Foundation said on its website today. The median estimate of 36 analysts surveyed by Bloomberg News was for a rise of 0.75 percent. The same index had risen 0.43 percent in March.
“Investors are expecting further rate cuts because that’s what the central bank is signaling, not because it is the right thing to do at this moment,” Rogerio Freitas, partner at Teorica Investimentos, said by phone from Rio de Janeiro. “There may be additional cuts in the short term, but inflation data for the next 12 months show prices rising again.”
Target Rate Cuts
Policy makers last week cut the benchmark rate by 75 basis points to 9 percent, saying a still “fragile” global economy is curbing inflation. The bank has lowered the rate by 350 basis points since August to just above the record low of 8.75 percent in an attempt to bolster economic growth.
The central bank’s interest-rate cuts are making Brazilian stocks more attractive, according to Audrey Kaplan, a money manager at Federated Investors Inc. She said she has boosted the portion of Brazilian stocks in her portfolio to 9.5 percent, from zero in 2011, as the central bank lowered its benchmark interest rate 3.5 percentage points since August.
“The environment is more favorable because interest rates are going down,” Kaplan said yesterday at the Bloomberg Latin America Investing Conference in New York. “Our biggest concern is the strength of the currency.”
Brazil’s benchmark equity measure has gained 8.7 percent this year, buoyed by local interest-rate cuts, signs of expansion in the U.S. and speculation Europe may be closer to resolving its sovereign-debt crisis. The gauge has fallen 9.8 percent since this year’s high on March 13 as signs of a slowdown in China spurred speculation demand for commodities exports may falter.
The Bovespa trades at 10.5 times analysts’ earnings estimates, in line with the 10.6 ratio for MSCI Inc.’s measure of 21 developing nations’ equities, data compiled by Bloomberg show.
Trading volume was 5.83 billion reais in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average of 7.23 billion reais this year through April 25, according to data from the exchange.
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