RIO DE JANEIRO, BRAZIL – In another day marked by a volatile financial market, the stock market fell sharply and closed at its lowest level in almost two months. The IBOVESPA index of the B3 Stock Exchange closed Monday, February 10th, at 112,570 points, down 1.05 percent.
This was the third consecutive session of a decline in the IBOVESPA, which reached its lowest level since December 16th, when it closed at 111,896 points. The last time it broke a record, on January 23rd, the indicator was at approximately 119,500 points.
Dollar
In the foreign exchange market, the rise in the US currency has taken a slight pause. After hitting successive record highs since the creation of the Brazilian real, the US dollar closed Monday selling at R$4.3205, down R$0.0005 (-0.01 percent).
The currency fluctuated between high and low moments, but operated close to stability throughout the session. The dollar has accumulated a 7.66 percent increase in 2020. The euro also dropped and closed the day at R$4.721, down 0.21 percent.
The Central Bank (BC) has not taken any new measures to hold the rate down. Yesterday, the monetary authority auctioned US$650 million to roll over (renew) foreign exchange swap contracts – which are equivalent to the sale of dollars in the futures market – maturing in April. The auction is part of the rollover of US$13 billion that would mature in two months.
In recent days, the dollar has risen globally, particularly against the currencies of emerging countries, after the announcement of job creation in January in the United States. Last month, the largest economy on the planet created 225,000 job vacancies, higher than the expected 158,000 new jobs.
The good performance of the US labor market makes room for potential interest rate increases by the Federal Reserve (FED), the US central bank. Higher rates in developed economies encourage capital flight from emerging countries, such as Brazil.
Coronavirus
In China, the concern that the coronavirus outbreak will impact the second largest economy on the planet continues to affect the financial market. The confinement of people in several cities affected by the disease reduces production and consumption in China, especially after the end of the lunar New Year’s holiday. Although many Chinese returned to work yesterday, whole cities remain under quarantine.
The expected slowdown of the Chinese economy directly impacts countries like Brazil, which exports several products, mainly commodities to the Asian country. With fewer exports, fewer dollars enter the country, increasing the demand and the price.
Among the domestic factors that have caused the dollar to appreciate is the recent decision by the Central Bank’s Monetary Policy Committee (COPOM) to reduce the SELIC benchmark interest rate – to 4.25 percent per year, the lowest level in history. Lower interest rates discourage the inflow of foreign capital into Brazil, also pushing up the dollar exchange rate.