Brazil’s Ibovespa closes high for first time this year; dollar falls below R$5.70

RIO DE JANEIRO, BRAZIL – Ibovespa struggled but managed to close high for the first time this year, although far from the day’s peak.

The main index of the Brazilian Stock Exchange rose more than 1% in yesterday’s session, testing the 102,000 points level, but ultimately succumbing to negative pressure from abroad.

The New York stock markets fell back with the prospect of higher interest rates in the United States in March, after the more hawkish tone of the American Central Bank (Federal Reserve) in its latest monetary policy meeting minutes.

According to Ivest Consultoria’s investment specialist Juan Espinhel, the stock market in Brazil started the year reacting to fiscal issues after the government decided to extend the payroll tax relief for companies in 17 sectors.

“We tried to recover this three-day fall in yesterday’s session, but the market abroad is dominant, as foreigners have a large share in our stock market and the hawkish tone of the Federal Reserve is getting in the way,” he explains. The day before, the Ibovespa fell 2.42% reflecting the American monetary authority’s document.

On Wednesday, the American Central Bank signaled that the monetary tightening cycle should start sooner than expected, given the escalating inflation that reached its highest levels in 40 years. The maintenance of interest rates near zero and purchases of government bonds and mortgages impacted the monetary authority’s balance.

Espinhel believes that Ibovespa is at risk of losing the 100,000 points, in spite of the stock market being cheap. “The fundamentals of companies are good, but the prospect of high interest rates abroad and the elections here in Brazil in 2022 are playing against it,” the expert says.

Stocks linked to commodities, which sustained the Ibovespa high during a good part of the day, also lost steam throughout the final trading hours. The exception were Vale (PETR4), the largest volume of Ibovespa yesterday, and closed up at 2.02%, helping the stock market end the day in the black.

Ibovespa closed up 0.55%, at 101,561 points. The day’s traded volume reached R$26.2 (US$4.6) billion. The Ibovespa futures for February 2022 rose 0.71%, at 102,380 points, in the last deals.

The commercial dollar closed near the day’s minimums: the U.S. currency fell 0.56% at R$5.679 to buy and R$5.680 to sell. The future dollar for February traded down 0.33% at R$5.716 near the close of business.

In the extended session, future interest rates pointed again to a less aggressive posture by the Brazilian Central Bank in the upcoming COPOM meetings. The DI for January 2023 retreated 14 basis points to 11.97%; the DI for January 2025 fell 11 basis points to 11.32%; and the DI for January 2027 retreated 10 basis points to 11.22%.

The domestic indicators continue to show fragility. This time it was the industrial production for November to show a negative monthly variation of 0.2% – the market was expecting an advance in the indicator and not a retraction.

In the United States, indexes closed slightly down. After the tumble the day before with the release of the Fed’s minutes, yesterday technology stocks tried to recover, but fell again. The Nasdaq closed with a slight drop of 0.13%, at 15,080 points. The S&P 500 closed the session down 0.1% and the Dow Jones dropped 0.47%.

The European stock markets yesterday reflected the American Central Bank’s minutes, as they were closed when the document was released late Wednesday afternoon. The day’s worst performers were technology sector shares – according to investors’ perception, higher interest rates reduce the attractiveness of these companies, which tend to be impacted by higher debt costs.

The pan-European Stoxx 600 index, which comprises companies from 17 countries in the continent, closed down 1.3%.

In the commodities segment, oil reacted to the political crisis that triggered protests in Kazakhstan, a raw material producing country. For now, there are no indications that production is being affected. Nevertheless, the WTI barrel of oil for February closed up 1.82%, at US$79.27. The Brent barrel, the reference for Petrobras, rose 1.72% to US$82.19.