Ibovespa falls 0.17%, with pressure from abroad and with fiscal risk; dollar advances 0.60%

The Ibovespa closed down 0.17%, at 100,591 points, this Tuesday (28). The main index of the Brazilian stock exchange advanced during the morning, but ended up giving way, with the pressure of the international market and also of the local interest curve.

In the United States, however, the drops were greater than those recorded in the local scenario. Dow Jones, S&P 500 and Nasdaq all dropped 1.56%, 2.01% and 2.98%, respectively. There, investors continue to position themselves cautiously, awaiting the publication of the price index for consumer spending (PCE), the country’s main inflation index, scheduled to be released on Friday.

Furthermore, Fabrizio Velloni, chief economist at Frente Corretora, points to the fact that the projection of US inflation for the next twelve months, as measured by the Conference Boardhit a record 8%, which weighed on market confidence and raised fears that the Federal Reserve could accelerate interest rate hikes.

Rodrigo Crespi, an analyst at Guide Investimentos, also highlights statements by Federal Reserve directors, who reinforced the prospects of higher interest rates in the United States.

John Williams, of the New York Fed, said, in an interview with CNBC, that the US monetary institution will discuss, at the July meeting, increases of 50 or 75 basis points and that the US economy must be at restrictive levels until 2023. Mary Daly, from the San Francisco Fed, defended that she sees the US economy growing less this year, despite not yet seeing a recession.

The rise in commodities also helped to boost the American yield curve – the dividend yield of the two-year bond rose one basis point to 3.12%.

Today, in China, iron ore rose 3.80% in Qingdao, at US$ 124.82 a ton. Brent crude, in turn, advanced 2.37% to $117.82 a barrel.

“Commodities reacted positively to the news of a small sign of openness from the Chinese government regarding Covid zero policy. The government of the second largest economy has halved the time tourists have to stay in quarantine to enter the country”, explains Bruno Di Giacomo, CIO of Blackbird Investments. “This was seen as a possible resumption of Chinese demand, with the country weakening restrictions,” he adds.

Ibovespa cannot keep up with the rise in commodities

In Brazil, despite the rise in non-manufactured products, which account for a large part of the index, the Ibovespa felt strong pressure from the lower aversion to risk worldwide and also from the yield curve.

“Commodities alleviated the biggest drop that the Ibovespa could have, they were the only ones that practically contributed positively”, says Di Giacomo. “There was a sell off coming from abroad, with the market seeing the risk of recession in the United States and also observing a stronger pace from the Federal Reserve in raising interest rates”.

Even with the rise in non-manufactured products tending to benefit Brazil in its trade balance, the dollar closed up 0.60%, at R$ 5.266 in purchases and sales, following the DXY, which advanced 0.53%.

In addition to lower risk aversion, DIs were also negative highlights in the trading session. The 2023 and 2025 contracts saw their rates rise by 10 and 26 basis points, respectively, to 13.77% and 12.86%. The DIs for 2027 and 2029 saw their yields advance 24 and 21 points, to 12.79% and 12.91%.

“The number of the increase in public debt grew at an accelerated rate”, comments Fabrizio Velloni, referring to the publication that the federal debt increased 2% in May, reaching R$ 5.7 trillion. “Even the news from China, with the easing of the lockdowndid not hold back the performance of the Ibovespa”.

Finally, Rodrigo Crespi points out that the market was in a bad mood because of the political news.

“There is fear that the PEC for fuels, to be presented, will bring more expenses than expected”, he says. “The fiscal made the interest curve widen, which had an impact on companies focused on the domestic economy. Retail, banking, healthcare, education – companies in all these sectors retreated quite strongly.”

The PEC’s rapporteur, Senator Fernando Bezerra Coelho (MDB-PE), again postponed the presentation of his opinion to Wednesday at 9:30 am (Brasilia time).

Among the biggest drops in the Brazilian index were the ON shares of Positivo (POSI3) and Via (VIIA3), with drops of 5.7% and 5.46%, respectively. Hapvida (HAPV3) and Rede D’Or (RDOR3) followed, falling 5.78% and 4.05%.

On the upside, Vale’s ON shares (VALE3) stand out, which rose 1.59%. Petrobras ON and PN (PETR3;PETR4), in turn, rose 1.43% and 1%.

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