RIO DE JANEIRO, BRAZIL – The brake on the search for risk assets in international markets and domestic political noises make caution in the opening of Brazilian markets on Thursday morning July 8. In early trades, the exchange rate reached R$ 5.2945, then fell.
On the other hand, future interest rate contracts show small fluctuations and mixed directions as investors ponder domestic inflation data and await the national government bond auction.
Around 9:30 AM the commercial dollar rose 0.61% to trade at R$5.2715, as the U.S. currency gained traction against the emerging currency real.
At the same time, the interbank deposit (DI) rate for January 2022 remained stable at 5.76% compared to the previous adjustment; the DI for January 2023 decreased from 7.22% to 7.20%; the rate for January 2025 increased from 8.24% to 8.26%, and the DI for January 2027 increased from 8.67% to 8.70%.
Risk aversion abroad currently prevails, with futures markets in New York posting losses of around 1.5% and major European spot equity indices down at least 2%.
Investors are therefore turning to safe assets such as government bonds, underpinning the rally in bonds. At the same time, the yield on the 10-year U.S. government bond (Treasury) fell to 1.276%, its lowest level since February.
In addition, the increase in Brazilian political tensions is also on the radar, following the arrest July 7 of the former director of logistics of the Ministry of Health, Roberto Dias, by the president of the CPI of the pandemic, Senator Omar Aziz.
The former staffer made a new statement to the Senate and posted bail to leave jail last night. According to Aziz and other senators, Dias repeatedly lied to the committee, which warranted his arrest for perjury. In this context, financial agents are alert to possible developments in the case.
On the domestic indicators agenda, the highlight was the National Broad Consumer Price Index (IPCA) for June, which slowed on a monthly basis from 0.83% in May to 0.53% in June, below the median of 38 financial institutions and advisors of 0.59%. The 12-month cumulative rate rose to 8.35%, well above the Central Bank’s inflation target of 5.25%.
The market is currently pricing in a majority probability of a 1 percentage point increase in the benchmark SELIC rate at the August Copom meeting, a bet that could be decided later today depending on the interpretation of the latest inflation data.
The fixed-rate government bond auction is another important catalyst for the interest rate market, testing the appetite for Brazilian debt in the face of risk aversion in global markets. The National Treasury Bills (LTN) offered today mature in October 2022, July 2023, and January 2025, while the Treasury Notes Series F (NTN-F) mature in January 2027 and January 2031. The Treasury Department is to publish the announcement of the offering at 10:30 AM.