Ibovespa falls 2.23% and goes to its lowest level since August, with PEC, Copom and Haddad; Dollar rises 0.20%

The Ibovespa closed down 2.23% this Thursday (Dec. 8) at 107,200 points – the worst level since Aug. 5, when it closed at 106,472 points. The main index of the Brazilian Stock Exchange reflected mainly the domestic news and detached from the movement recorded by American benchmarks.

In New York, Dow Jones, S&P 500, and Nasdaq rose, respectively, 0.55%, 0.75%, and 1.13%, breaking a sequence of drops.

In an interview with CNBC about Wall Street, Quincy Krosby, chief global strategist at LPL Financial, justified that in these cases, “it doesn’t take much to create grounds for small ups,” with the indexes naturally going through corrections after considerable drops.

The specialist also cited the fact that unemployment insurance claims in the week ended Dec. 3 came in within consensus, which lessens fears of a very heated economy over there.

The first local news that pulled the Ibovespa down was the Monetary Policy Committee (Copom) statement, released last night.

For analysts, despite maintaining the Selic at 13.75%, the institution’s authorities were subtle when they warned that the financial risk could impact the group’s next decisions.

“The most important thing, besides the maintenance of the rate at 13.75%, was the tone given by the Central Bank, which expressed uncertainty about the future of fiscal policy in Brazil, especially about the Transition PEC, which raises the spending cap,” commented Acilio Marinello, professor at Trevisan Business School.

“The speech by Campos Neto, president of the Central Bank, was tougher because there is a real concern and a greater caution regarding the consequences that this overspending can bring to the macroeconomy.”

At the same time, the Senate also approved, without many difficulties, the text of the Transition PEC, which expands the spending cap by R$145 (US$27) billion in 2023 and 2024.

“There was an expectation, from part of the market, that the PEC would go through dehydration already in the Senate. Now, experts expect changes in the House.”

“But since the approval was quick, there is the risk of it passing as it is, with more expenses. We keep up with it,” says Luiz Souza, a broker at SVN Investimentos.

The fiscal risk and Copom’s speech helped to lead the Brazilian yield curve upwards in its middle and long end.

The DIs for 2025 gained 4.5 basis points, to 13.08%, and those for 2027, 4.5 points, to 12.78%.

The DIs for 2029 went to 12.84%, gaining 10 points, and those for 2031 to 12.87%, with another 11 points.

Finally, the day was of little volume and caution, in general.

“The market is with little volume because of tomorrow’s Brazil game, and today’s drop is mainly related to yesterday’s Copom, which warned about fiscal deficits,” debates Lucas Mastromonico, equity trader at B.Side Investimentos.

“In addition, Fernando Haddad went to talk with Paulo Guedes today, and this is a strong signal that he may take over the Treasury.”

Lula da Silva will announce some ministers next Friday morning, and Haddad is expected to be among them.

On the short end, however, the Brazilian yield curve was slightly helped for another day by the drop in oil prices, with the price of a barrel of Brent falling 1.11% to US$ 76.31 – which takes away part of the inflationary pressure.

The DIs for 2024 lost 1.5 basis points, at 13.83%.

In line with the consensus, October retail data also helped on this front.

“We had retail data released earlier, which came in line with expectations, but it doesn’t help the sector, which has accumulated a strong fall. The retail and consumer staples are falling heavily today amid the rise in the yield curve.”

“There’s no point in retail data coming in line if the sector is hurt and there in front of the expectation is bad with possible new interest rate hikes”, added Duarte.

The dollar, finally, closed up 0.20% against the real, at R$ 5.215 in the purchase and R$ 5.216 in the sale – even with the American currency having lost strength internationally.