Aug. 26, 2010, 6:08 p.m.
Brazil's currency rises, stocks decline after labor data
Lower unemployment, easing inflation shifts outlook on rate decision
LOS ANGELES (MarketWatch) -- Brazil's currency advanced Thursday following a better-than-expected report from the country's labor front.
The currency /quotes/comstock/21o!x:susdbrl (USDBRL 1.7558, -0.0060, -0.3406%) traded at 1.759 reals per U.S. dollar, slightly higher than 1.764 reals late Wednesday in the wake of figures from Brazilian statistics agency IBGE that the unemployment rate in Latin America's largest economy was 6.9% in July.
The unemployment rate is the lowest July reading since the agency began keeping track in 2002, it said. The reading was less than the 7.06% estimated by analysts polled by Dow Jones Newswires. The unemployment rate was 7% in June, and registered 8% in July of 2009.
Also, the agency said average real income of workers rose by 5.1% year-over-year, and by 2.2% from June.
"A considerably strong increase in employment" on a seasonally adjusted basis from June "more than compensated for the upward move in the number of unemployed people ... and drove the unemployment rate down," wrote Guilherme Loureiro, an economist with Barclays Capital's emerging-markets research group, in a note Thursday.
Loureiro said while it expects slowing in the pace of Brazilian employment growth, with a stable but low unemployment rate, "tight labor market conditions should continue to put pressure on real wages, helping lift the real wage bill. This, together with the sturdy credit expansion, remains supportive for household consumption."
The report of job creation comes amid softening inflation in Brazil. Last week, consumer prices through mid-August slipped 0.05% compared with expectations for a rise. The annual inflation rate dipped to 4.4%, just below the central bank's inflation target of 4.5%.
As domestic activity has remained strong, broker Brown Brothers Harriman said it's viewed the central bank as being on the hawkish side. But the recent pullback in pricing pressures can't be ignored, wrote Win Thin, senior currency strategist at Brown Brothers Harriman.
"It is now possible that the bank goes on hold for the remainder of the year to see how things develop and then act in 2011 as circumstances warrant. Tightening could resume if the economy accelerates again, but wait-and-see seems prudent for now," he wrote, adding that the outlook on monetary policy became "a little hazier" after the latest inflation data.
Among equities, the Bovespa index fell 1.4% to 63,867 in broad-based losses, led by the interest-rate sensitive housing sector. Gafisa shares /quotes/comstock/13*!gfa/quotes/nls/gfa (GFA 13.25, -0.31, -2.29%) fell 1.7%, PDG Realty /quotes/comstock/11i!pdgr.y (PDGRY 0.00, 0.00, 0.00%) fell 2.1% and MRV Engenharia /quotes/comstock/11i!mrvny (MRVNY 16.94, 0.00, 0.00%) slid 4.8% to lead all decliners.
High interest rates are likely to continue to attract foreign investors to Brazil's currency and for now, said Thin, it would play the 1.75-1.80 range that that real has held for much of the third quarter.
The benchmark Selic rate currently stands at 10.75%, with market expectations now changed to reflect that the view that the central bank will hold the rate steady when it releases its decision on Sept. 1. Market players had been looking for a hike to 11%.
The decline in the unemployment rate came the same day as the U.S., the world's largest economy, said the number of people filing first-time claims for unemployment benefits fell for the first time in four weeks, down 31,000 to 473,000. First-time claims, however, are still higher from the beginning of this year. Read about the U.S. weekly jobless claims.
Investors on Wall Street had pushed stocks higher following the jobless-claims report, but the market gave up those gains after a report of slowing manufacturing activity in the Kansas City region. The S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,047, -8.11, -0.77%) fell 0.8% to 1,047.22, and the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 9,986, -74.25, -0.74%) fell 74 points to 9,985.81, the first close below the 10,000 points level since July 6. Read Market Snapshot.
In Mexico, the IPC equity index fell 0.8% to 31,217.99. Argentina's Merval fell 0.4% to 2,321.44, but Chile's IPSA rose 2 points to 4,455.10.