Brazil’s Stocks Decline as Estacio, Kroton Drop on Rate Outlook

(Bloomberg) -- The Ibovespa slipped as a gloomy outlook for companies that depend on local demand overshadowed gains in metals.

For-profit college managers Estacio Participacoes SA and Kroton Educacional SA were among the biggest losers on the index. Homebuilder EZTec Empreendimentos e Participacoes SA declined after disappointing third-quarter results. Miner Vale SA gained as iron ore rose the most in three months.

Prospects for consumer stocks were dimmed as the central bank signaled moderate interest-rate cuts in coming months, surprising economists who had expected a faster reduction in borrowing costs. The central bank said in the minutes from its most recent meeting that political turmoil still poses a risk to the country’s economic rebound.

“There has been a lot of optimism over Brazil’s recovery, but the reality is that the economy is still weak," said Jason Vieira, the chief economist at Infinity Asset Management from Sao Paulo. “Companies that sell in the domestic market will continue suffering for some time.”

Later on Tuesday, the lower house of Congress is scheduled to hold a second-round vote on a constitutional amendment to cap increases in public spending, one of the key measures the central bank is monitoring. If approved, the bill would be sent to the Senate.

The Ibovespa slid 0.3 percent to 63,866.20 at the close of trading in Sao Paulo as 37 of its 58 stocks fell. State-controlled oil producer Petroleo Brasileiro SA, known as Petrobras, followed a decline in crude prices.

Estacio fell 3 percent, while Kroton declined 2 percent. EZTec dropped 3.3 percent after cancellations exceeded booked sales in the same period. Brazil’s central bank last week cut its benchmark Selic rate by a quarter percentage-point, less than some analysts had expected.

Brazilian stocks have gained the most in the world this year in dollar terms amid optimism that President Michel Temer will succeed in shoring up the country’s finances and restoring growth. Looser credit conditions are seen as a key factor on the recovery plan.

While the nation struggles to get back on track, a brighter outlook for commodity prices limits the pessimism on the stock market. The Ibovespa advanced as much as 0.3 percent earlier Tuesday with Vale. Suzano Papel e Celulose SA and Fibria Celulose SA were among the best performers on the equity gauge as pulp prices climbed for the second consecutive week.

--With assistance from Ney Hayashi To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd, Jessica Brice