São Paulo Stock Exchange closes up but accumulates 3% drop in the week; dollar reaches R$5.60

RIO DE JANEIRO, BRAZIL – In a day of few encouraging news, the Ibovespa index overcame negative pressure from abroad on Friday (19) and closed slightly higher, returning to 103,000 points.

Analysts say that investors realized that the drops in the Stock Exchange in recent days were excessive and looked at assets with greater calm, which led to a specific trend of price recomposition. Despite yesterday’s high, the index has accumulated a drop in the week and is now negative in November.

The index’s main stocks played against each other in the session. While Petrobras closed down 1.38% for the ON assets and 1.66% for the PN securities and with the drop in international oil prices, Vale climbed 2.73% with a recovery in iron ore.

The pandemic has again impacted commodities and stock markets abroad after Austria announced a new lockdown for next week following a surge in Covid-19 cases in the country due to a low vaccination rate. Germany has also tightened restrictive measures and does not rule out taking the same course as its neighboring country.

“In Brazil there is fiscal risk and low growth, but there is no trend for a lockdown and for the economy to stop again. Today the market drew a slight premium for Brazil based on this, after significant drops in our index,” says Monte Bravo partner Rodrigo Franchini.

Ivest Consultoria investment specialist Juan Espinhel says that the market is now more optimistic about the potential approval of the Court-ordered federal debt proposed constitutional amendment (PEC) in the Senate. He says that subdividing the PEC would increase the likelihood of an understanding among senators and prevent the text from having to be returned to the Chamber of Deputies.

“We only have 3 to 4 weeks of active Congress before the recess and this will be a key period, because next year, an election year, there will be no major budget changes,” Espinhel explains.

He says that although investors don’t like the PEC, they consider it to be a softer alternative to a direct breach of the spending cap, which could worsen the government’s accounts faster. One way or another, tampering with the budget by pushing judicial debts forward jeopardizes the government’s ability to honor its commitments, which forces the Central Bank to offset this risk by raising interest rates.

The vote of the PEC in the Senate is scheduled for next week, which is expected to be one of sharp fluctuations for the Ibovespa, analysts say.

Yesterday, the index closed up 0.59% to 103.035 points. The traded volume reached R$27 (US$4.8) billion. In the week, the Ibovespa accumulated a drop of 3.1%. The Ibovespa future with maturity in December 2010 traded up 0.07% at 103.560 points, near the closing.

The commercial dollar rose again and closed Friday up 0.7% at R$5.608 to buy and R$5.609 to sell. In the week, the U.S. currency accumulated a rise of 2.76%. The future dollar maturing in December traded higher by 0.93% at R$5.620 in the last deals of the day.

In the future interest rates market, the DI for January 2023 fell 11 basis points to 12.05%; DI for January 2025 retreated 16 basis points to 11.93%; and the DI for January 2027 fell 12 basis points, to 11.74%.

Central Bank president Roberto Campos Neto said yesterday during a lecture that he is concerned about inflation expectations for Brazil in 2022. He also said that the trajectory of the public debt would become explosive if the SELIC (basic interest rate) remains high, between 11% and 12%, and the country grows about 1%.

In the United States, the House of Representatives on Friday passed the almost US$2 trillion spending package on education, health and against climate change of U.S. president Joe Biden, called the Build Back Better Act. Despite opposition from Republicans, claiming that the measure could worsen inflation in the country, the package secured 220 votes in favor.

However, New York indices fell on the negative repercussions of the Covid-19 surge in Europe. The Dow Jones closed down 0.75% at 35,601 points; the S&P 500 dropped 0.14% at 4,697 points; and the Nasdaq technology exchange rose 0.4% at 16,057 points.

Over the weekend, investors should monitor signs of a potential succession at the U.S. Federal Reserve. President Joe Biden may appoint a name to replace current chairman Jerome Powell.

In Europe, the Stoxx 600 index, which comprises the shares of 600 companies from all major sectors in 17 European countries, closed down 0.33% with the risk of new lockdowns. This also led to the largest drop in oil prices in 6 weeks. Brent crude, the price reference for Petrobras, fell 3.4% to US$78.46 a barrel. The WTI (West Texas crude) price fell 3.67% to US$76.11 a barrel.