Brazil´s IBOVESPA Hits 118,000 Points, Nearing All-time Record

RIO DE JANEIRO, BRAZIL – After opening among losses and gains, the IBOVESPA picked up speed and soared on Wednesday afternoon, December 16th, closing the trading session close to 118,000 points for the first time since the start of the year.

The main index of the Brazilian stock market closed up 1.47%, at 117,857 points – the record for the year 2020 is 119,527 points, posted on January 23rd. At its peak yesterday the index reached 118,178 points. The financial volume totaled R$32.16 (US$6.2) billion in a session marked by the announcement of new incentives in the American economy and maturity of options on the IBOVESPA and the futures index.

“The daily flow was atypical because of the options maturity. There was a very large stock of calls [call options] bought below 112 and, for these investors, the further away the IBOVESPA is from the option exercise value, the better. This has produced strong buying pressure”, explains Rodrigo Moliterno, partner and head of variable income of Veedha Investimentos.

There is also a positive boost coming from the foreign scenario. In the United States, the main stock indexes closed positive, reflecting the interest decision and the subsequent statement by Federal Reserve (Fed) president Jerome Powell, consolidating the incentives policy. As expected, the Fed kept interest rates in the United States close to zero, ranging between 0% and 0.25%.

Moreover, the U.S. monetary authority signaled purchases of at least US$120 billion in bonds per month – US$80 billion in treasury bonds and US$40 billion in mortgage bonds – until “substantial progress” is made toward meeting the Committee’s maximum targets for employment and price stability.

“This shows that the Fed is committed to recovering the U.S. economy. It was a long-awaited speech by the markets, so much so that the S&P500 index began to rise as Powell spoke,” says Gustavo Bertotti, chief economist of Messem Investimentos. Among the main American indexes, two closed up: the S&P500 with a 0,18% increase and the Nasdaq, which climbed 0,50% reaching a new record. The Dow Jones closed the trading session down 0.15%.

In addition to the Fed, investors also remain optimistic with the prospect of the U.S. Congress reaching an agreement on the stimulus package. The day before, leaders of the Republican and Democratic parties met to discuss the measure in detail. After the meeting, Senator Mitch McConnell, leader of the Senate Republican majority, said the discussions were productive. Chuck Schumer, leader of the Democratic minority in the Senate, also signaled progress. “I hope we can reach an agreement soon,” he said.

Lower than the over US$2 trillion package suggested by the Democrats before the elections, under current terms the incentive is expected to amount to about US$750 billion, part of which is earmarked for programs to assist the unemployed and for loans to small businesses. The incentive is expected to be passed later this year.

Figures from the European economy also add to the positive outlook. Despite the second wave of coronavirus, December’s purchasing manager’s indexes (PMIs) exceeded expectations on the continent. In the Euro Zone, the industrial PMI stood at 55.5 points, above the 50 points range that mark the contraction of activity growth and above the estimated 53 points. In Germany, the industrial PMI was even higher, at 58.6 points. On the other hand, despite higher than expected, the services PMI showed some fragility, remaining at 47.3 points. In the country, new isolation measures were reinstated to curb the spread of the virus.

The continent’s stock markets closed positively, with Germany’s DAX index up by 1.52%. The pan-European STOXX600 index climbed 0.82%.

In the local scenario, Brazil attracts the attention of investors, with the vote on the Budget Guidelines Law (LDO). By 444 votes to 10, deputies passed the 2021 proposal’s basic text. The text now proceeds for presidential sanction.

However, the vote on the details of the 2021 Budget should only be held next year, when Congress will review the Annual Budget Law (LOA), which estimates revenues and establishes federal government expenses.

Fiscal uncertainty weighed on the dollar, which closed at a high of 0.41%, at R$5,1082. The U.S. currency also gained momentum in the afternoon after the Fed held its interest rates near zero.