Brazilian Stock Market Down 7.2 Percent, Worst Week Since March; 3rd Consecutive Monthly Drop

RIO DE JANEIRO, BRAZIL – The Brazilian stock market retreated on Friday, October 30th, amid the climate before the extended weekend and American elections, which will be held on Tuesday, November 3rd. The IBOVESPA dropped by 2.72 percent, to 93,952 points, its lowest closing level since September 29th.

In the week, the index accumulated losses of 7.22 percent, the worst weekly drop since the period from March 16th to 20th, when it hit bottom in the year. In the month, the accumulated drop was of 0.69 percent, which pushed the index to its third consecutive monthly retreat.

The trend followed the drop in U.S. indices, pressured by Apple and Amazon’s results, which did not please investors and caused their shares to fall by 5.60 and 5.45 percent, respectively. The Nasdaq index, where the shares of both companies have greater weight, retreated 2.45 percent in this session, while the Dow Jones and S&P 500 recorded losses of 0.59 and 1.21 percent, in that order.

In the week, the Dow Jones and S&P 500 fell by 6.5 and 5.6 percent, respectively, also the largest weekly drop since March; Nasdaq sank by over five percent.

“The market already tends to be defensive before the weekend, even more so with the Monday holiday. There is also a combination of factors that cause the market to be more volatile, such as the increase in coronavirus infections in Europe, the American elections, and the results season. It is a climate of extreme caution and a great uncertainty,” comments Gustavo Bertotti, economist of Messem.

Among the corporate highlights of the day, the highest drops in the IBOVESPA are related to B2W (BTOW3), which reported its balance Thursday evening, Cia Hering (HGTX3), and Via Varejo (VVAR3), with drops between 8.97 and 5.97 percent. On the positive side, only three of the 77 IBOVESPA stocks rose: Vivo (VIVT4), IRB Brasil (IRBR3), and Rumo (RAIL3), but both with gains of less than one percent.

In the week, also only three index stocks closed high: NotreDame Intermédica (GNDI, +2.19%), Rumo (RAIL3, +1.16%), and Hapvida (HAPV3, +1.00%). At the opposite end, leading the losses were Gol (GOLL4, -20.23%), CVC Brazil (CVCB3, -18.51%), and Azul (AZUL4, -16.79%).

In the month’s ranking, the best performers were CSN (CSNA3), Weg (WEGE3), and Santander (SANB11), with valuations of 24.48, 15.42, and 14.63 percent, respectively, while the worst performers were headed by CVC Brazil (CVCB3), Lojas Americanas (LAME4) and IRB Brazil (IRBR3), with drops of 23.87, 18.18 and 18.02 percent, respectively.

On the stock market, future interest increased. José Faria Júnior, director of Wagner Investments, draws attention to the rates of the 2023 and 2025 contracts above the respective long-term trend reversal triggers. “If these trends are reversed, we could see an increase of some 30 points in the 2023 contract and some 50 points in the longer contracts, which would lead to secondary impacts on the exchange and stock market.”

On the radar of local investors are the unemployment data for the quarter ended in August, released in the Continuous PNAD of the Brazilian Institute of Geography and Statistics (IBGE).

According to the survey, the unemployment rate rose to 14.4 percent and was above the average market expectation of 14.2 percent. But the figure could be even higher. According to Necton’s chief economist, André Perfeito, the rate was expected to be above 20 percent, if the number of people looking for work would be the same as last year.

The GDP of the main European countries was also on the economic agenda. In Germany, the Q3 GDP positively surprised market expectations by standing 8.2 percent above Q2, while the market expected a 7.3 percent growth. However, in the annual comparison, GDP was negative by 4.1 percent.

In France, the GDP also outperformed the estimates by posting quarterly growth of 18.2 percent against an expected 15.4 percent. In the Euro Zone as a whole, GDP was up by 12.7 percent, although it was still 4.3 percent below that recorded in Q3 2019. In Europe, the pan-European Stoxx 600 index increased by 0.30 percent. The French CAC index rose 0.54 percent.

Exchange rate

On the exchange market, the dollar has passed the R$5,80 mark in the morning, but fell amid the setting of the reference rate for dollar contracts for the following month. On the month’s last trading session, the exchange tends to be more volatile because those who are buying in dollars try to raise the rate (formed by four consultations, the last of which at 1 PM), while those selling in dollars try to lower it. This dispute is known in the market as “ptax fight”.

In the day, the American currency dropped by 0.44 percent, to R$5.7383. At its peak in the trading session, the American spot currency skyrocketed to R$5.809, its highest since May 15th. The dollar future contracts were down 0.76 percent at 5:19 PM, at R$5.74, while during the week it accumulated a 2.01 percent high. In the month, the contracts valuation stood at 2.17 percent, reaching the third consecutive monthly high.

“From what we discussed with bank trading desks, the dispute should be balanced, with a slight advantage for buyers, which should try to leave the dollar in this R$5.77 range”, says Jefferson Ruik, Correparti’s exchange director. “This fight runs until the early afternoon, then it should be somewhat protected for the weekend”. With the currency rising amid the “ptax fight”, the Central Bank was forced to intervene in the exchange rate with a cash dollar auction, which helped push the American currency to negative ground. At 1:40 PM, the commercial dollar fell by 0.52 percent and was sold at R$5.735, but had been gaining ground.

With the dollar again nearing its peaks since May, when the American currency nearly reached R$6, the outlook for the exchange in the market worsens. This week, the Swiss UBS bank changed its projections for the exchange rate for the end of the year, which moved from R$4.95 to R$5.40. According to the financial institution, recent volatility and fiscal challenges in Brazil have weighed on the change in projections. The projection for 2021 rose from R$4.60 to R$ 4.95.

Change of schedule

As of November 3rd, the B3’s trading session will be extended and will close at 6 PM. The change aims to accompany the American trading session schedule, which will also be changed due to the end of daylight saving time in the United States this Sunday, November 1st.

Source: Exame