Stock Market up 7.1 Percent, Dollar Down to R$4.64 on Rebound Day

RIO DE JANEIRO, BRAZIL – Following a day of historical losses and global panic, the stock market recovered part of its losses, and the dollar experienced its highest daily drop in six months.

The US dollar closed Tuesday, March 10th, at R$4.64, down R$0.08 (1.69 percent) from the R$4.72 close on Monday. In percentage terms, it was the highest daily drop since September 4th last year, when the currency slid 1.79 percent.

The Central Bank sold dollars from international reserves to ease the market for the second consecutive day. The monetary authority sold US$2 billion on the spot market. It announced the sale of US$1 billion in foreign exchange swap contracts for Wednesday, March 11th, as a sale of dollars in the futures market. The dollar has accumulated a 15.77 percent high in 2020.

After falling 12.17 percent on Monday, March 9th, the IBOVESPA index closed the day up 7.14 percent, at 92,214 points, the highest increase for a single day since January 2009.

Petrobras’ shares, which dropped by close to 30 percent on Monday, also rebounded. Common stock (with voting rights) closed the day up 8.51 percent. Preferred stock (with no voting rights) appreciated by 9.41 percent.

International oil prices also climbed. The Brent Crude oil barrel, which dropped some 26 percent on Monday, appreciated by 9.84 percent to US$ 37.84 on Tuesday.

Oil Price War

Markets around the globe, which in recent weeks have been experiencing times of instability over fears of a global recession caused by the coronavirus, are now faced with a price dispute over oil between Saudi Arabia and Russia. A member of the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia increased oil production after Vladimir Putin’s government decided not to join an agreement to reduce extraction around the world.

The drop in the price of oil impacts the shares of Petrobras, the largest Brazilian company capitalized on the stock market. According to Petrobras, the extraction of oil in the pre-salt layer is only viable when the barrel price is above US$ 45.

Consequences

The drop in oil prices has further consequences for the Brazilian economy. If prices remain low, Petrobras will pass on the drop in the international price to gasoline and diesel. If, on the one hand, the drop benefits consumers; on the other, it hampers the ethanol industry, which loses competitiveness.

Lower prices reduce oil royalties and the Tax on Circulation of Goods and Services (ICMS), the main State-imposed tax, thus reducing government revenue at a time when several states are facing financial hardship.

Source: Agência Brasil