Stock markets reflect austerity in Brazil with surprising SELIC hike and slack in the US

RIO DE JANEIRO, BRAZIL – Two very different messages came from central banks yesterday. While the United States expressed less concern with inflation, in the “we know it’s going to rise a little, but it’s okay” style, here in Brazil the COPOM (Monetary Policy Committee) surprised everyone with more austerity than some in the market had expected.

The target for the basic interest rate, the SELIC, was raised by 0.75 percentage points to 2.75% a year, when the overwhelming majority of the market was expecting an adjustment of only 0.50 percentage points.

“It was a surprising decision, but the right one, and the announcement is indicating a similar increase for the next meeting, but it also indicates that it should not quickly reach a neutral rate, which would be close to 5%,” says Victor Hasegawa, equity manager at Infinity Asset.

In the decision’s announcement, the Central Bank noted that, except for “a significant change in the inflation projections or in the risk balance, the Committee foresees a continuation of the partial normalization process of the monetary stimulus with another adjustment of the same magnitude.”

Read: Brazil lifts SELIC benchmark rate with a 75 basis point hike

For Bráulio Borges, associate researcher of the Getúlio Vargas Foundation’s Brazilian Institute of Economics (Ibre/FGV), the Central Bank’s decision is a reaction much more to the exchange rate than to inflation, based on an assessment that takes into account the “deliberate” decision to surprise the market and the fact that the monetary authority has sold about US$10 billion of reserves in the spot market, in addition to having offered a good volume of currency swaps.

“The interest rate hike will help to relieve the pressure on the real. The devaluation of the real ultimately helped pressure inflation,” says Hasegawa. The dollar has already accumulated a 7.67% rise this year against the real.

The market repercussion of the decision on the SELIC will also be a matter of trust, of investors believing that the Central Bank’s signal will serve as an efficient anchor for inflation expectations from now on.

The Fed’s decision had an immediate stock market relief reaction yesterday afternoon as it removed, in part, the pressure on future US interest rates. So much so that the 10-year Treasury bond interest rate, one of the most closely followed by the market, actually dropped.

However, today the rate has risen again and broke the level of 1.70% and reached 1.739% this morning, for the first time since the beginning of 2020, putting pressure on American stock markets, particularly the Nasdaq, with technology companies being the most heavily affected by the rise in future interest rates, explains Hasegawa.

In the US, the discussion is whether the inflation is transitory or more lasting, as the Fed has already acknowledged.

Agenda

One day after the Central Bank committees in Brazil (COPOM) and the USA (FOMC) announced their monetary policy decisions, today it is the turn of the British (BoE) and Japanese (BoJ) central banks. In both cases, the maintenance of interest rates is expected.

Among the economic indicators, the domestic calendar has no highlights, while abroad the weekly unemployment claims in the USA are due at 9:30 AM. Last week there were 712,000 initial claims and now 700,000 new claims are estimated.

International stock markets

Asian stock markets closed high on Thursday driven by the Federal Reserve’s pledge to maintain an ultra-loose monetary policy until at least 2023.

The Nikkei, the Tokyo Stock Exchange’s reference index, closed the day up 1.01%, and the Kospi, of the Seoul Stock Exchange, rose 0.61%. On the Hong Kong Stock Exchange, the Hang Seng rose 1.28%. In China, the Shanghai Composite rose 0.51%, and the Shenzen Composite gained 0.87%.

After the Fed, it will be the Bank of Japan’s (BoJ) turn to announce its monetary policy decision on Thursday evening and to be closely monitored by investors.

Brazilian Business News

Nearly two years after purchasing Netshoes and Zattini, Magazine Luiza has bought Steal the Look, a website that recommends purchases of clothes and beauty items.

The Procon-SP Foundation assessed a fine of R$10,546,442.48 on Cia Brasileira de Distribuição, the owner of companies such as Pão de Açúcar, Extra and Compre Bem, for violating 4 articles of the Consumer Defense Code.

Sequoia Logística e Transportes entered into an agreement to acquire 100% of the capital stock of Lithium Software (Frenet), a digital transportation solutions platform for the B2C market (online commerce between companies and consumers).

Anima Holding recorded a net loss of R$33.1 million in the fourth quarter last year, up 16.9% compared to the same period in 2019. Between January and December the loss totaled R$41.1 million, up 328.5% year-on-year.

Yduqs reversed the R$58.1 million net income recorded in the fourth quarter in 2019 and posted a loss of R$102.6 million in the same period last year. Between January and December, net income totaled R$98.2 million, down 84.8% year-over-year.

Alliar recorded net income attributable to shareholders amounting to R$12.7 million in the fourth quarter last year, which represents a 71.2% increase over the same period in 2019. Between January and December, the company posted a loss of R$97.4 million, reversing the R$41.3 million profit recorded in 2019.

EZTec closed 2020 with its highest net income since 2015. Earnings were up 44%, to R$405.2 million, and the net margin rose from 34.9% to 43.3%. The 81% increase in the net financial result, to R$168 million, was the main reason for the performance. Net revenue increased 16%, to R$936.6 million.

Source: Valor Investe