IBOVESPA Drops 5.2 Percent to Lowest Since July 2017; Dollar Soars to R$5.13

RIO DE JANEIRO, BRAZIL – The IBOVESPA closed with a sharp drop on Monday, March 23rd, and receded to 2017 levels due to the stalemate in the US Congress, which twice failed to pass a US$2 trillion rescue package to tackle the damaging economic effects of the coronavirus.

The US stock markets collapsed by as much as 4.2 percent yesterday, after the second attempt at an agreement between Democrats and Republicans failed in the afternoon, but mitigated the losses and closed down at close to three percent.

However, on the other hand, the Federal Reserve’s commitment to limitless asset purchases to help investors face the coronavirus crisis was welcomed by the market. One such measure will be a US$300 billion program to support the flow of credit.

In Brazil, the number of cases of infection by the Covid-19 reached 1,891, with 34 deaths. Worldwide, the number of infections has reached 329,000 people, according to Johns Hopkins University. The deaths stand at 14,300.

In Italy, 601 new deaths were reported yesterday and 4,789 infections since Sunday. The fatalities, although still very high, declined for the second consecutive day, as 651 people died on Sunday and 793 died on Saturday. The country expects the pandemic to slow down this week.

In Brazil, the Central Bank has announced a reduction in the rate of compulsory reserves against future loans from 25 to 17 percent. “The temporary measure aims to increase the liquidity of the National Financial System,” the Central Bank said in a statement.

The IBOVESPA index dropped 5.22 percent to 63,569 points with a trading volume of R$24.6 billion, reverting to its lowest closing level since July 10th, 2017, when the main B3 index closed the trading session at 63,025 points.

The futures dollar for April rose 1.33 percent to R$5.132, while the commercial dollar rose 2.21 percent to R$5.1357 when banks purchase and R$5.1385 when they sell.

In the futures market, the Interbank Deposit Rate for January 2022 dropped 24 basis points to 5.61 percent, for January 2023 it increased nine basis points to 7.23 percent and for January 2025 it advanced 38 basis points to 8.67 percent.

On Sunday, the BNDES (Brazilian Development Bank) suspended payment of borrowing companies’ debts for six months and announced that it will release R$55 billion to companies. Entrepreneurs also called for a “Marshall Plan” to prevent the collapse of the Brazilian economy, with trade virtually closed and services reduced as a result of the epidemic.

Regarding the package of measures in the US, legislators and government officials hoped to reach an agreement so that both Houses of Congress would pass it at the start of the week on Monday and before the financial markets react adversely to the crisis.

However, Democrats said the package drafted by the Republicans favors business, yet it does not extend far enough to assist people facing unemployment and loss of income.

Legislators may vote again on a motion to proceed if they agree on the draft bailout package, but Republican Senator Mitch McConnell (Kentucky) criticized Democrats in the Senate after the vote. “We’re back to square one,” McConnell said after the vote failed. He said he would try again at a time of his choosing.

COPOM minutes

Yesterday, the Central Bank released the minutes of the Monetary Policy Committee’s (COPOM) last meeting, in which the SELIC was cut by 0.5 percentage points to 3.75 percent amid the impacts of the coronavirus on the economy.

The committee members pointed out that “the economic climate calls for a stimulating monetary policy, that is, with interest rates below the structural rate”. This assessment was included in last week’s COPOM statement.

The document pointed out that the Central Bank considers the maintenance of the SELIC at the new level as adequate. However, it pointed out that the environment for the emerging economies has become challenging, that the coronavirus is causing a significant slowdown in global growth and that the Central Bank will continue to make use of its full arsenal. In this case, new data are crucial to take the next steps.

The minutes list the virus transmission paths and mention that projections suggest that a cut above 0.50 p.p. would be required, but considered that it would be counterproductive if reforms were discontinued. According to the Central Bank, the coronavirus causes global deceleration and the effect on activity may be significant.

Focus Report

The market has reduced the GDP growth projection for Brazil from 1.68 to 1.48 percent in 2020, reports the Focus survey conducted by the Central Bank with economists from the financial sector.

The market also projects a stronger dollar exchange rate at the end of the year, with the rate rising from R$4.35 in last week’s survey to R$4.50 per dollar in yesterday’s report.

There was a slight reduction in the projection for inflation measured by the IPCA (Broad Consumer Price Index) for 2020, from 3.10 to 3.04 percent.

The market maintained the 2.5 percent growth projection in GDP for 2021 and the SELIC basic interest rate unchanged at 5.25 percent per year.

There was a slight change in the exchange rate for 2021, with the dollar expected to close 2021 quoted at R$4.25 – last week’s projection was R$4.20.

Policy

President Jair Bolsonaro called state governors “job exterminators” in an interview with a TV station on Sunday evening. The President again downplayed the epidemic and attacked the press.

“You don’t see me attacking any governor, they attack me all the time. Soon, the people will know that they have been deceived by these governors and by most of the media on this coronavirus issue,” he said.

However, despite attacking the press, Bolsonaro included it in a decree signed on Sunday as one of the essential services that cannot be stopped because of the pandemic. The decree signed on Sunday has immediate effect.

Judiciary

Federal Supreme Court (STF) Justice Alexandre de Moraes suspended payment of São Paulo State’s debt to the Federal Government for six months. On Monday alone, R$1.2 billion should have been paid.

The STF measure forces the São Paulo government to invest the money in fighting the coronavirus pandemic. “The pandemic is a real and imminent threat, which will exhaust the capacity of the public health system, with disastrous consequences for the population, unless measures of immediate effect are not adopted,” wrote the Justice.

In its request to the STF, the government of São Paulo alerted that 70 percent of the more than 1,500 cases of the coronavirus in Brazil are found in the state, which concentrates 20 percent of the Brazilian population. The debt of the State of São Paulo to the federal government amounts to R$247 billion.

Corporate news

Vale mining company purchased 5 million rapid test kits to detect the coronavirus. According to the company, the kits deliver the result in only fifteen minutes. Vale purchased the kits in China and they will be donated to the Brazilian government. The first shipment of one million units is expected to be delivered to Vale on Friday (March 27th) and may be available in Brazil the following week.

Via Varejo and Lojas Marisa announced over the weekend that they had closed all their retail stores in Brazil to try to contain the coronavirus epidemic.

Source: Infomoney