By Tom Murphy
Brazilian share prices were lower in early trading Wednesday on domestic political turmoil and worries about the pace of the global economic recovery.
Brazil’s benchmark Ibovespa stock index was down 0.24% at 63,080 points in early trading, according to Tullet Prebon via Factset.
Tuesday night, Brazilian President Dilma Rousseff accepted the resignation of her top aide, Antonio Palocci, following allegations against Palocci of influence-peddling. Rousseff named a little known senator, Gleisi Hoffmann, of the southern state of Parana as her new top aide.
“The initial market reaction is negative,” said Mario Battistel, of Sao Paulo’s Fair brokerage. “In the end, however, this could prove a blessing in disguise. The president no longer has to carry the weight of a top adviser dogged by corruption allegations.”
According to Battistel, rising international risk aversion will weigh more heavily on the Brazilian market this week than the president’s political woes.
In comments Tuesday, U.S. Federal Reserve Board Chairman Ban Bernanke said the American economic recovery was “unequal” and “frustrating.”
The comments led to declining stock prices in Europe and Asia, with Brazil following suit, traders said.
Brazilian investors also have to cope with the possibility of higher domestic interest rates.
Brazil’s central bank on Wednesday night will review its Selic base interest rate. Given current inflation of 6.55%, an interest rate hike is highly likely.
According to UBS bank economists, in a research note, the central bank will likely hike the Selic rate by a quarter point Wednesday night to 12.25%. Another quarter-point hike is likely in July, with the bank then holding the Selic rate steady for the rest of 2011 and into 2012.
Higher interest rates typically cause a shift in investment money from stocks into fixed-income accounts.
Blue chips were mostly lower in early trading.
State-controlled energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras, was unchanged at 23.00 Brazilian reais (US$14.56) in early trading as global oil prices dipped.
Mining major Vale (VALE, VALE5.BR) fell 0.25% to BRL43.98.
Aircraft manufacturer Empresa Brasileira de Aeronautica (ERJ, EMBR3.BR), or Embraer, was unchanged at BRL12.00.
Minas Gerais utility Cemig (CIG, CMIG4.BR) lost 0.43% at BRL30.43.
Steel maker Gerdau (GGB, GGBR4.BR) was down 0.18% at BRL16.51.
Telecom leader Tele Norte Leste SA (TNE, TNLP4.BR), or Oi, fell 0.52% to BRL26.71.
