Brazil’s currency and stocks seesawed on Monday, reflecting uncertainty over the passage of a proposed pension reform and the impact of sliding iron ore prices in China. Brazil’s real weakened as much as 0.2 percent before closing up 0.18 percent at 3.137 per dollar. The benchmark Bovespa stock index likewise fell in early trading before closing very slightly up. Investors are gauging the difficulty of passing a reform to cut social security expenses by 700 billion reais ($223 billion) over the next decade.
In recent days, informal polls by local media have indicated a lack of congressional support for the plan, which senior government officials are trying to downplay. Expectations that the central bank will cut its benchmark Selic overnight lending rate by a full percentage point on Wednesday have been offset by a wait-and-see approach to the reform agenda, the cornerstone of President Michel Temer’s plan to pull Brazil from its worst economic recession on record.
“There was no progress in the pension reform process since the last interest-rate meeting” almost 45 days ago, said a research report by Itaú BBA, noting that “resistance in Congress seems to be growing.” Preferred shares of Itaú Unibanco Holding SA, the stock with the largest weighting in the Bovespa, fell 0.18 percent. The bank won a 25 billion-real ($8 billion) tax case with the government on Monday, although it can be appealed by tax agency officials. Preferred shares of Vale SA, the world’s top iron ore producer, shed as much as 2 percent during the session as prices for the mineral fell in China, but closed almost flat.