Brazil’s stock market dropped 11% in June, worst month since the pandemic

RIO DE JANEIRO, BRAZIL – Ibovespa, the main index of the Brazilian stock market closed the last trading day of June with a drop of 1%. This Thursday, June 30, the Ibovespa had its third consecutive trading session in the red.

• Ibovespa: -1.08%, at 99,541 points

In the month, the index accumulated a fall of 11% – the worst monthly drop since March 2020, when the pandemic started. In the year’s first half, the accumulated drop is 5.94%.

Furthermore, June was marked by volatility. After recording highs close to 113,000 points at the beginning of the month, Ibovespa started an accelerated downward movement and fell below the 100,000 points mark.

The downfall came in the wake of the performance of the foreign market. The main US index, the S&P 500, had the worst performance in the first half since 1970. Investors fear the economy will go into recession, pressured by the central banks’ battle to contain inflation.

In the United States, the epicenter of the tensions, the Federal Reserve (Fed, the American central bank) raised the interest rate by 0.75 percentage points (p.p.) in June, the biggest tightening since 1994.

“Higher interest rates help fight inflation but can lead to a shortage of available capital and compromise global economic growth, even causing a recession,” explains Lucas Serra, an analyst at Toro Investimentos.

The main American indexes ended the day down:

• Dow Jones (New York): -0,80%
• S&P 500 (New York): -0,86%
• Nasdaq (New York): -1,33%

Besides the international markets, the Ibovespa was also penalized by the domestic fiscal scenario. In recent sessions, the focus was on the Proposed Amendment to the Constitution (PEC) on Fuels (16/2022), which goes to a vote today in the Senate.

The PEC decrees a state of emergency until the end of the year to extend the payment of social benefits and provides for an expenditure of R$38 billion (US$7 billion).

Investors fear that this additional expenditure, which will be accounted for outside the spending cap, will worsen the Brazilian public accounts, contributing to an increase in inflation.

In the exchange rate, the unfavorable situation affected the Brazilian real against the US dollar. The American currency rose and was traded at R$5.27 at the maximum of the day.

The session was also marked by volatility with the formation of the month-end and half-year Ptax. The exchange rate calculated by the Central Bank, the Ptax, is used as a reference for contracts involving business in dollars.

The Ptax is calculated daily but is usually more volatile in the last trading session of the month because this last rate will be used for foreign exchange contracts for the following month.

In June, the dollar advanced 10.13% against the real. However, in the year to date, losses against the Brazilian currency still total 6.41%.

• Commercial Dollar: +0.81%, at R$5.23

STOCK HIGHLIGHTS

Commodities also reacted to the threat of recession as investors worried about demand. The price of Brent crude fell 1.19% to $114 a barrel, hurting shares of Petrobras (PETR3; PETR4), which dropped more than 1% on Thursday.

Petrobras (PETR3): – 1,10%
Petrobras (PETR4): – 0,53%

In turn, iron ore registered a drop of 0.42% in the Chinese stock exchange of Dalian, damaging the shares of Vale (VALE3) and steel mills, among the main casualties of the day.

Vale (VALE3): -2,83%
CSN (CSNA3): -6,42%
CSN Mineração (CMIN3): -6,31%

The positive highlight of the day was the shares of Fleury (FLRY3) and Hermes Pardini (PARD3), which announced on Thursday the combination of their operations.

Fleury’s shares soared more than 16% and led the Ibovespa’s highs, while Hermes Pardini’s shares, traded outside the index, advanced almost 19%.

Fleury (FLRY3): +16.10%
Hermes Pardini (PARD3): +18.99%.

With information from Exame