(Bloomberg) -- Brazil's dependence on commodity exports is costing stock and currency investors.
The Ibovespa stock gauge posted the world's biggest decline, slumping 3 percent on Tuesday as an index of commodity prices tumbled the most in two weeks. Losses were even worse in dollar terms as the real weakened for the fifth time in the past six trading sessions.
The country's securities are particularly vulnerable to selloffs in raw materials because commodities such as metals, soybeans and oil account for more than half of Brazil's exports and the industry accounts for 27 percent of the Ibovespa's weighting. Today's drop overshadowed optimism that the Senate will approve a spending cap bill designed to restore investor confidence in the government's ability to shore up its finances.
"The slump in commodities in a bad external environment is weighing on appetite," said Italo Abucater, the head of foreign-exchange trading at Icap Brasil. "Traders are also focusing on the first round of voting of the spending ceiling in the Senate."
After Brazil lost its investment-grade credit rating in 2015, investors have focused on whether President Michel Temer will be able to curtail budget deficits and put the country on the path toward leaving behind its junk status. The vote in the Senate is expected to show strong support for the spending cap, and may reduce concerns tied to fresh political turmoil.
The Ibovespa index slid to 60,968.52, led by declines in oil producer Petroleo Brasileiro SA and iron-ore producer Vale SA, while the currency fell 0.2 percent to 3.3928 per dollar. The Bloomberg Commodities Index declined 2.1 percent, the most since July.
The real sold off last week amid concerns Temer may be implicated in a corruption scandal after Culture Minister Marcelo Calero resigned and said he recorded conversations in which the president pressured him to assist a fellow minister to resolve a stalled real estate project. Temer is speeding up the process to send proposed pension reforms to Congress and is pushing to approve fiscal adjustment measures to ease political tensions, according to Folha de Sao Paulo newspaper. The government is also planning to announce measures for the oil industry and the privatization of airports, Folha said.
Iron ore prices slumped for the first time in six days, making Vale one of the biggest drags on the Ibovespa as the shares declined 4.2 percent. Petrobras fell 5.2 percent as oil prices retreated after OPEC officials failed to bridge differences on an agreement to cut production and revive prices one day before ministers from the member countries meet to finalize the first decline in production in eight years.
Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, dropped 0.04 percentage point to 12.08 percent.
To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net.
To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net.
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