Factors Driving IBOVESPA Up 4.7 Percent and the Dollar Down Two Percent to R$5.72

RIO DE JANEIRO, BRAZIL – The IBOVESPA Index closed up 4.69 percent on Monday, May 18th to 81,194 points, reaching its highest level since April 29th, when the main B3 index closed the trading session at 83,170 points. It was also the stock market’s highest daily gain since April 6th, when it was up 6.52 percent.

The day’s trading volume totaled R$34.235 billion. On Monday, the maturity of stock options turned over R$7.5 billion in the B3 and increased the trading session’s volatility.

The commercial dollar dropped 2.03 percent to R$5.7199 in buying and R$5.7205 in selling. The future dollar for June is down 2.29 percent to R$5.727.

In the future interest rate market, the DI (Interbank Deposit) for January 2022 dropped ten basis points to 3.42 percent, the DI for January 2023 dropped 16 basis points to 4.59 percent and the DI for January 2025 dropped 16 basis points to 6.61 percent.

Three factors were behind the euphoria that took over the market yesterday:

New vaccine

The shares of US biotech company Moderna Inc. were up 20 percent on the New York Stock Exchange after the company announced positive results in the first stage of the development of a vaccine against the coronavirus.

According to Moderna, two doses administered to 45 trial participants were effective in boosting antibody production by patients.

This result involves a small number of people. The company has announced that it will carry out new trials in July that may involve 600 patients.

The Food and Drug Administration (FDA), the equivalent of the ANVISA in Brazil, has already authorized the second stage of trials. “The provisional stage 1, although at an early stage, demonstrates that vaccination with the mRNA-1273 produces an immune response of the same magnitude as that caused by natural infection,” said Tal Zaks, Moderna’s medical director, in a statement.

Powell’s speech

On Sunday, Federal Reserve Chairman Jerome Powell said the US economy should gradually rebound in the second half of the year and that confidence rates should only return to pre-crisis levels after a vaccine is available. The Fed Chairman also stated that he is not out of ammunition to fight the recession.

Powell also told the US Congress yesterday that the Fed is committed to using all available tools to tackle the economic recession caused by the Covid-19 pandemic.

Economic reopening

Italy, which has already recorded more than 32,000 deaths from coronavirus, has overcome the peak of the pandemic and yesterday reopened trade, bars, cafés, restaurants, and museums, in a gradual return to normality.

Nevertheless, care will still be taken such as the mandatory wearing of masks in stores and the minimum distance of one meter between restaurant tables.

The US, which has recorded 93,263 deaths, is also in the process of economic reopening. It is expected that the relaxation of social isolation will expedite the country’s economic rebound.

Amid this optimism, French President Emmanuel Macron and German Chancellor Angela Merkel have announced a four-point plan that includes a €500 billion aid fund for the countries most affected by the crisis.

More news

In Brazil, the focus is on the handling of the health crisis, after the resignation of the Minister of Health, Nelson Teich, and the unfolding of disclosures by entrepreneur Paulo Marinho, involving Senator Flávio Bolsonaro, the President’s son, and the Federal Police.

Among the indicators, the Central Bank’s Focus Report showed that the median of economists’ projections for the Gross Domestic Product (GDP) in 2020 converged to a 5.12 percent contraction, compared to a drop of 4.11 percent projected last week. Projections for 2021 were upheld and growth of 3.2 percent.

The outlook is also for a lower SELIC at the end of the year, from 2.50 to 2.25 percent. For 2021, the outlook for a basic interest rate of 3.50 percent was maintained.

The National Broad Consumer Price Index (IPCA), the official inflation meter, was also revised downward from 1.76 to 1.59 percent in 2020. Economists also slashed their 2021 IPCA projections from 3.25 to 3.20 percent.

In turn, the dollar projection increased from R$5 to R$5.28 in 2020 and from R$4.83 to R$5.00 in 2021.

Waiting for a new Minister

Brazil is waiting for the selection of the new Minister of Health after Nelson Teich resigned last Friday amid the spiral of coronavirus cases, with the country just behind the US, Russia, and the UK as the global epicenter for the disease.

According to the Folha de S. Paulo column, Jair Bolsonaro told allies over the weekend that he will not be pressured in choosing the future Minister of Health to replace Teich. Therefore, there is growing assessment among the President’s advisors that General Eduardo Pazuello, interim Minister, will be in charge of the portfolio for at least another week.

Pazuello is expected to sign a new cabinet protocol on the use of chloroquine also for patients with mild symptoms of the disease. This was the point that sparked a clash between the ex-Minister, who was in office for less than a month, and President Jair Bolsonaro.

Fearing the impacts of social isolation on the economy, the President has also called for the reopening of the economy, even as the number of cases and deaths caused by Covid-19 have increased. Data from the Ministry of Health show that Brazil counts 241,080 confirmed cases since the start of the pandemic and 16,118 deaths.

Political clash

The week also kicked off with the repercussions of entrepreneur Paulo Marinho’s report to the newspaper “Folha de S.Paulo”. In an interview published on Sunday, the former ally of President Jair Bolsonaro said that Senator Flávio Bolsonaro, the President’s son, was tipped off about Federal Police investigations conducted in 2018 and involving his cabinet – at the time, Flávio was a state deputy.

The Federal Police (PF) will investigate this accusation, which should be addressed by the investigation dealing with the allegations of ex-Minister of Justice Sérgio Moro about Jair Bolsonaro’s potential interference in Federal Police investigations.

According to Folha, Marinho is expected to testify, but no date has yet been set. In the interview, the entrepreneur said he heard from Flávio that in October 2018, he was approached by a PF delegate and alerted to Operation ‘Furna da Onça’, which was investigating the “splitting” scheme at the Rio de Janeiro Assembly. This operation, according to Marinho, would have been deferred until it was launched in November, so as not to interfere with Jair Bolsonaro’s election.

Corporate news

In the corporate arena, the end of balance reports season is on the radar. Equatorial and Marfrig release their first quarter results after the markets closed. Last Friday, Cemig reported a loss of R$56.8 million and Even recorded a net profit of R$36.3 million.

Higher rises

Major drops

Still on the corporate radar, Vale commented on a note by Mining.com, in which it pointed out last week that the city of Brumadinho suspended Vale’s operating license after health agents said the activities on site did not respect social isolation rules. The municipality also interrupted repair work on the Córrego do Feijão mine tailings dam, according to the report.

Petrobras began non-binding stages for the sale of Gaspetro and NTS, while JBS increased production in the US after reopening its facilities. Finally, Cogna Educação approved the 6th issue of R$500 million in debentures.

Source: InfoMoney